N^648.r- 


STATE  OF  NEW  JERSEY 
OFFICE  OF  STATE  TREASURER 


DEPARTMENT 

OF 

MUNICIPAL  ACCOUNTS 

Walter  R.  Darby 
Comml 38 loner 


REQUIREMENTS  OF  AN  AUDIT 


Return  this  book  on  or  before  the  ^  J  , 

Latest  Date  stamped  below.  A  i 

charge  is  made  on  all  overdue 
books.  - 

University  of  Illinois  Library 

--f-  =  \ 


riMr 


»  ft  . 


These  sheets  will  fit  standard  ring  binders  of  various  manufacture. 


STATE  OF  NEW  JERSEY 
OFFICE  OF  STATE  TREASURER 


DEPARTMENT 

at 

MUNICIPAL  ACCOUNTS 

WALTER  R.  DARBY 

Commissioner 

4 


Requirements  of  an  Audit 


The  present  edition  of  the  requirements  of  an  audit  has  been  enlarged  to 
cover  the  procedure  on  the  trust  and  capital  divisions  of  accounts.  The 
former  requirements  have  not  been  changed  in  principle  but  certain  matters 
have  been  elaborated  upon  to  a  greater  degree  and  more  in  detail. 


TRENTON,  N.  J. 
October,  1922. 


5  ^:z.l 

^  Requirements  of  an  Audit. 

f  _ 

>• 

rt 

^  At  the  outset  attention  is  particularly  directed  to  Chapter  267, 
P.  L.  1918,  as  amended  by  Chapter  105,  P.  L.  1921. 

I.  Experience  has  shown  that  the  provisions  of  Section  2  (b) 
,  have  not  been  observed  as  they  should  be.  This  section  and  the 
registration  blank  which  is  signed  by  every  applicant  before  a 
license  is  issued  require  that  the  accountant  “will  honestly  and 
faithfully  audit  the  books  and  accounts  of  a  municipality  or  county 
when  engaged  so  to  do,  and  report  any  error,  omission,  irregu¬ 
larity,  violation  of  law,  discrepancy  or  other  nonconformity  to 
the  law,  together  with  his  recommendations  to  the  governing 
body  of  such  municipality  or  county.”  Many  accountants  have 
failed  to  report  matters  which  they  have  pledged  themselves  to 
report  and  which,  under  the  statute,  they  are  required  to  report. 
In  this  connection  also,  in  manv  instances  there  is  a  dearth  of 
comments  and  recommendations.  The  object  of  the  audit  is  not 
only  to  show  the  financial  condition  and  transactions  of  a  munici¬ 
pality,  but  also  to  call  attention  to  matters  which  have  not  been 
handled  in  a  proper  manner  with  the  idea  that  they  shall  not  occur 
again. 

2.  Another  matter  which  has  been  generally  ignored  is  the  pro¬ 
vision  of  Section  3,  that  the  municipal  accountant  shall  file  a 
CERTIFIED  DUPLICATE  COPY  of  his  report  and  recommendations, 
as  filed  with  the  municipality,  with  the  Commissioner  of  Munici¬ 
pal  Accounts.  This  does  not  mean  that  the  regular  certificate  as 
to  the  audit  shall  be  omitted,  but  that  the  report,  as  filed  with  the 
Department,  shall  be  certified  as  a  true  and  exact  copy  of  that 
filed  with  the  municipality.  An  affidavit  is  not  necessary  and  the 
following  form  of  certification  is  suggested:  “This  is  to  certify 
that  the  within  report  is  a  true  and  exact  copy  of  that  furnished 
the  (City,  Town,  etc.)  of  (Name)  County  of  (Name). 

3.  The  1918  Act  has  been  amended  so  as  to  clarify  the  reasons 
for  which  licenses  may  be  withheld.  They  are : 

a.  Knowingly  failing  to  comply  with  Section  2  (b) 
referred  to  above. 

h.  Issuing  false  reports  of  audit. 

3 


c.  Issuing  reports  of  audit  which  do  not  show  an  ac¬ 
curate,  intelligent  and  complete  statement  of  the  finan¬ 
cial  condition  of  the  municipality. 

d.  Issuing  reports  of  such  nature  as  not  to  comply 
with  the  requirements  of  the  Department  of  Municipal 
Accounts. 

e.  Failing  to  file  a  copy  of  the  report  and  recommen¬ 
dations  with  this  Department  within  five  days  after 
filing  it  with  the  municipality. 

/.  Neglecting  or  refusing  to  carry  out  any  agreement 
or  contract  for  audit. 

4.  The  licenses  are  dated  as  issued  but  the  period  which  the 
license  covers  has  been  changed.  Licenses  will  be  in  effect  from 
date  of  issue  to  August  31st  following. 

5.  Section  6  provides  that  any  person  who  shall  make,  or  begin 
to  make,  any  audit  of  accounts  of  any  municipality  or  county 
contrary  to  the  provisions  of  Chapter  268,  P.  L.  1918,  as 
amended,  or  without  a  license  therefor  in  full  force  and  effect, 
shall  be  liable  to  a  penalty  of  one  hundred  dollars  for  every  audit 
of  accounts  so  made. 

6.  Section  7  requires  all  reports  of  audit  of  accounts  of  mu¬ 
nicipalities  to  be  signed  by  the  auditor  or  accountant  making  the 
audit  or  in  charge  of  same,  holding  a  license  as  provided  in  the 
statute.  This  means  that  the  accountant  or  auditor  signing  a 
report  must  have  personal  knowledge  of  the  accounts  covered 
by  the  report  gained  from  experience  and  observation  in  the 
field.  It  does  not  mean  that  a  licensed  accountant  may  sign  a 
report  which  has  been  made  by  someone  else  who  may  not  even 
be  subject  to  the  direction  of  the  licensed  accountant  who  signs 
the  report.  It  has  come  to  our  notice  that  some  accountants  have 
signed  reports  when  they  were  not  even  connected  with  the  firm 
or  accountant  who  did  the  field  work.  This  is  not  permitted  by 
the  statute  and  cannot  be  countenanced. 


Chapter  268,  P.  L.  1918,  as  supplemented  by  Chapter  106, 
P.  L.  1921. 

7.  a.  There  has  been  considerable  misunderstanding  as  to  the 
interpretation  of  the  provisions  of  this  act.  Section  r  provides 
for  an  annual  audit  of  the  accounts  of  ever\  municipality  and 
county  c  f  the  State.  Where  the  assessed  valuations  are 


$3»ooo>CKX)  or  over  such  annual  audit  has  to  be  made  and  com¬ 
pleted  within  four  months  after  the  close  of  each  fiscal  year  by  a 
registered  municipal  accountant.  That  is  to  say,  the  audit  must 
be  made  and  completed  each  year  on  or  before  May  ist. 

b.  For  those  municipalities  having  an  assessed  valuation  of 
less  than  $3,000,000  the  annual  audit  may  be  made  and  com¬ 
pleted  within  four  months  after  the  close  of  each  second  fiscal 
year.  The  only  difference  between  a  municipality  having  an 
assessed  valuation  of  $3,000,000  and  over  and  one  of  less  than 
$3,000,000  is  that  one  annual  audit  may  be  deferred  and  two 
annual  audits  made  at  one  and  the  same  lime.  The  act  went  into 
effect  in  1918.  The  first  audit,  therefore,  which  could  be  made 
under  the  act  was  the  audit  of  the  1918  accounts.  The  1919 
accounts,  then,  did  not  have  to  be  audited  until  they  were  audited 
with  the  1920  accounts,  and  the  reports  for  both  years  completed 
and  filed  on  or  before  May  i,  1921.  The  effect  of  this  is  that 
the  audit  for  the  odd  year  may  be  deferred  and  made  at  the  same 
time  with  that  of  the  succeeding  even  year.  It  does  not  mean 
that  the  audit  of  any  year  may  be  entirely  omitted.  The  report 
of  audit  for  each  year  must,  therefore,  be  a  distinct  and  separate 
and  complete  report  just  as  if  the  report  of  audit  for  the  odd  year 
had  been  made  or  completed  immediately  at  the  close  of  that  year 
and  not  deferred. 

8.  The  supplement  authorizes  the  Commissioner  of  Municipal 
Accounts,  where  an  audit  has  not  been  made  by  reason  of  the 
failure  or  refusal  of  the  governing  body  to  institute  and  complete 
such  audit,  to  make  such  an  audit  either  himself  or  by  his  em¬ 
ployees  or  agents.  Where  an  audit  has  not  been  instituted  and 
completed  as  provided  by  Chapter  268,  P.  L.  1918,  before  a 
registered  accountant  can  make  the  audit  it  becomes  necessary 
to  secure  the  waiver  of  the  right  on  the  part  of  the  State  to  make 
the  audit  and  consent  for  the  employment  of  some  other  account¬ 
ant  or  auditor. 

9.  An  audit,  to  be  of  the  greatest  benefit  to  all  concerned, 
should  be  filed  prior  to  the  approval  and  adoption  of  the  budget. 
The  value  of  an  audit  filed  after  such  time  is  mainly  that  of  a 
record.  Engagements  for  audit  should  not,  therefore,  be  de¬ 
ferred,  but  prompt  filing  of  the  report  should  be  insisted  upon  by 
the  municipal  officials  in  order  that  any  deficits  or  deferred 
charges  may  be  included  in  the  next  succeeding  budget,  instead 
of  in  a  later  budget.  The  point  is  that  the  report  should  be  made 
and  filed  at  a  time  when  it  contains  live  facts  and  not  history. 


10.  Balance  Sheets. 

a.  Where  it  is  not  possible  to  accept  the  balance  sheet 
of  a  previous  auditor  the  balance  sheet  should  contain  three  col¬ 
umns  : 

1.  That  of  the  previous  audit  as  at  December  31st  of 

the  previous  year. 

2.  Revised  balance  sheet  as  at  December  31st  of  the 

previous  year. 

3.  Balance  sheet  as  at  December  31st  of  the  year  under 

review. 

» 

As  we  are  accustomed  to  express  it,  it  is  necessary  either 
to  accept  or  upset  the  balance  sheet  of  the  previous  auditor.  Full 
comment  should  be  made  as  to  the  reasons  for  the  changes. 

b.  Errors  in  current  accounting  should  not  be  corrected 
through  the  report  of  audit.  The  report  of  audit  should  repre¬ 
sent  the  net  results  of  the  transactions  for  the  year  after  the  neces¬ 
sary  corrections  have  been  made.  The  corrections  necessary  to 
bring  the  books  of  account  into  agreement  with  the  report  of 
audit  should  be  presented  to  the  officials  responsible  for  the  books 
of  account  and  the  auditor  should  see  that  the  corrections  are 
made. 

11.  Certification. 

Each  report  of  audit  must  be  certified.  See  paragraph 

No.  2. 

12.  Deferred  Audits. 

Report  of  audit  must  be  made  for  each  year  separately 
and  each  report  must  be  complete  in  itself.  See  paragraph  No. 

7  (b). 

13.  Duplicates. 

a.  After  the  tax  duplicates  have  been  certified  by  the 
County  Board  of  Taxation  it  does  not  lie  within  the  power  of 
any  particular  official  to  change  or  revise  or  alter  the  tax  dupli¬ 
cate.  Such  changes  or  revisions  or  alterations  must  be  made  by 
the  parties  clothed  with  power,  and  then  only  in  accordance  with 
the  provisions  of  the  statutes.  The  governing  body  has  the 
power  to  cancel  duplicate  or  fictitious  assessments  on  real  estate. 
The  governing  body  has  the  power  to  cancel  or  remit  taxes 
assessed  on  personal  property,  and  also  poll  taxes,  when  they 
cannot  be  collected.  The  particular  point  to  be  observed  is  that 
unless  and  until  the  governing  body,  by  a  proper  resolution,  remits 


6 


or  cancels  taxes  they  must  stand  as  open  items  of  taxes  on  the 
duplicates.  The  fact  that  the  collector  has  noted  after  a  certain 
tax  the  words  “Dead,”  “Moved  away,”  “Cannot  find,”  or  similar 
notations,  does  not  cancel  the  tax.  The  tax  becomes  a  charge 
against  the  individual  when  placed  on  the  duplicate  by  the  assessor 
and  certified  by  the  County  Board  of  Taxation.  Unless  the  tax 
is  paid  it  remains  open,  and  must  be  considered  as  a  delinquent 
tax  until  formal  action  is  taken  by  the  governing  body.  Such 
formal  action  consists  of  a  resolution,  properly  passed  by  the 
governing  body,  dealing  with  each  item  of  tax  separately  as  to 
page,  line,  name,  amount  and  year.  (Where  the  assessments  are 
by  number,  the  assessment  number  may  be  substituted  for  the 
page  and  line  of  the  duplicate.)  This  resolution  must  then  be 
entered  in  detail  on  the  minutes  by  the  clerk.  The  effect  of  this 
is  that  every  item  of  delinquent  tax  which  has  not  been  regularly 
written  off  or  canceled  must  stand  as  a  delinquent  tax,  and  be  so 
considered  until  written  off  in  a  proper  manner  by  the  proper 
authority. 

h.  I.  The  collector  has  the  power  to  correct  mathe¬ 
matical  errors  in  the  extensions  or  totals  of  items  of  taxes  with¬ 
out  reference  to  anyone.  It  is  obvious  that  on  a  certain  valuation 
at  a  fixed  rate  there  can  be  only  one  amount  of  tax,  and  that  the 
correct  amount.  Because  someone  has  entered  an  incorrect 
amount,  that  does  not  make  that  amount  the  tax  which  has  been 
levied.  For  example,  on  a  valuation  of  $5,000,  at  a  rate  of  $2  00 
per  $100,  the  tax  is  $100.  Suppose  the  item  is  extended  as 
$1,000  or  $10,  as  the  case  may  be.  No  such  tax  ever  existed  nor 
ever  could  exist.  The  only  tax  which  ever  did  exist  is  the  correct 
tax,  $100.  The  collector  has  full  power  to  correct  such  errors. 
The  proper  way  to  make  such  corrections  is  to  enter  the  correct 
amount  of  the  tax  alongside  the  incorrect  amount,  with  the 
initials  of  the  party  making  the  correction  and  the  date  on  which 
the  correction  was  made.  Similarly,  if  the  total  of  the  taxes  on 
any  page  is  incorrect,  corrections  should  be  made  in  the  same 
manner. 

2.  The  collector  also  has  the  power  to  add  taxes  to  the 
duplicate  which  have  been  omitted  by  the  assessor.  When  such 
additions  are  made,  the  County  Board  of  Taxation  should  be 
notified  of  the  additions. 

c.  The  amount  of  all  taxes  outstanding  at  the  be¬ 
ginning  of  the  year  under  audit  must  be  established  for  each  year 
for  which  there  are  any  delinquent  taxes.  The  changes  during  f 
the  year  due  to  collections,  remissions,  deductions,  sales,  etc.,  1 
must  be  shown,  together  with  the  amount  outstanding  at  the  end  j 
of  the  year. 


7 


d.  The  current  duplicate  must  be  added  and  proved. 
Remissions  and  deductions  must  be  supported  by  proper  author¬ 
ity — not  merely  entries  in  the  duplicate.  The  cash  collections, 
remissions,  deductions,  transfers  of  taxes  to  tax  title  liens,  etc., 
together  with  the  taxes  outstanding,  must  equal  the  total  of  the 
duplicate. 

1^0 te — (i)  The  report  of  audit  must  contain  a  definite  state¬ 
ment  to  the  above  effect.  This  is  particularly  necessary  where 
no  supporting  schedules  of  outstanding  taxes  are  required. 

(2)  Taxes  on  property  the  tax  title  of  which  is  owned  by  the 
municipality  are  not  delinquent  taxes,  but  are  tax-title  liens. 
Therefore  such  taxes  must  not  be  included  in  the  lists  of  delin¬ 
quent  taxes,  but  in  the  lists  of  tax-title  liens. 

(3)  It  has  developed  that  some  accountants  are  accepting  the 
lists  of  delinquent  taxes  furnished  by  the  tax  collector  without 
verification.  This  is  a  dangerous  procedure,  and  is  almost  cer¬ 
tain  to  prove  disastrous  to  those  who  practice  it. 

14.  Tax  Title  Liens. 

a.  All  delinquent  taxes  are  liens,  but  a  further 
distinction  is  made  between  tax  title  liens  and  ordinary  liens. 
Section  32  of  the  Tax  Sale  Revision,  Chapter  237,  P.  L.  1918, 
provides  that  where  a  parcel  of  land  is  held  by  the  municipality 
under  a  sale  not  redeemed,  then  until  the  right  of  redemption  is 
barred,  all  subsequent  taxes  shall  be  assessed  in  the  name  of  the 
owner,  as  if  no  sale  had  been  made,  and  shall  be  additional  liens 
on  the  land  and  be  added  to  the  amount  of  the  sale.  The  effect 
of  this  is  that  when  a  tax  sale  is  held  and  a  parcel  of  real  estate 
is  knocked  down  to  the  municipality,  the  amount  of  the  tax  sale 
certificate  is  set  up  as  a  tax  title  lien.  The  next  year  that  parcel 
of  real  estate  is  assessed  in  the  name  of  the  original  owner,  but 
the  taxes  receivable  for  the  year  should  be  credited  with  the 
amount  of  the  tax  on  this  parcel  and  charged  to  the  tax  title  lien 
account.  The  result  is  that  the  list  of  delinquent  taxes  contains 
only  items  of  taxes  on  real  estate  which,  unless  collected,  subject 
the  property  to  sale,  not  those  items  the  title  of  which  has  already 
been  purchased  by  the  municipality. 

b.  In  accordance  with  the  preceding  paragraph,  the 
value  of  the  original  certificate  is  set  up  as  the  amount  of  the 
original  tax  title  lien.  The  principal  of  the  tax  for  each  succeed¬ 
ing  year  on  each  parcel  of  real  property  should  be  added  to  the 
value  of  the  original  certificate.  The  taxes  receivable  for  each 
year  should  be  credited  with  the  amount  so  transferred  and  the 
tax  title  lien  account  charged  with  the  same  amount. 


N.  B.  If  the  ta^v  title  lien  accounts  are  not  in  proper  shape  and 
complete  it  becomes  the  duty  of  the  accountant  to  make  them 
complete  and  intelligible. 

c.  In  this  connection  we  wish  to  urge  the  desirability 
of  cleaning  up  old  tax  lists  not  only  because  it  simplifies  the 
work  of  the  accountant,  but  also  because  delinquent  taxes  from 
five  to  fifty  years  old  are  assets  of  questionable  value.  Action 
should  be  taken  either  to  collect  or  otherwise  dispose  of  such 
delinquent  taxes  in  accordance  with  the  statute. 

d.  The  interest  and  costs  accrued  on  tax  titles  which  are 
included  in  the  tax  sale  certificate  are  a  direct  credit  to  the  surplus 
revenue  account  for  the  year  in  which  the  sale  is  made. 

15.  Revenues  and  Receipts. 

a.  The  revenues  accruing  to  the  municipality  for  the 
period  under  audits  must  be  established  and  verified.  All  receipts 
of  revenues  must  be  verified  as  to  source  and  disposition. 

b.  It  must  be  understood  that  revenues  in  many  in¬ 
stances  are  different  from  receipts.  For  instance,  the  revenue 
from  poll  tax  is  the  amount  of  poll  tax  levied  according  to  the 
duplicate.  If  there  has  been  no  receipt  on  account  of  any  poll 
tax  the  revenue  would  still  be  the  amount  of  such  tax  shown  on 
the  duplicate. 

c.  Miscellaneous  revenues  realized  on  account  of  items 
stated  in  the  budget  as  anticipated  are  considered  only  with 
respect  to  the  aggregate  amount  of  such  realization.  No  regard 
is  paid  to  whether  the  individual  items  are  in  excess  of  the  antici¬ 
pation  or  not.  In  other  words,  if  there  are  six  items  of  antici¬ 
pated  miscellaneous  revenues  in  the  budget  and  only  one  of  the 
items  realized  is  in  excess  while  the  other  five  are  deficient,  still  if 
the  aggregate  of  the  amounts  realized  is  in  excess  of  the  total 
of  the  items  anticipated  there  is  no  deficit.  On  the  other  hand, 
where  the  aggregate  amount  realized  is  less  than  that  anticipated, 
such  deficit  must  be  carried  as  a  deferred  asset  to  be  covered  by 
an  appropriation  in  a  succeeding  budget. 

d.  Miscellaneous  revenues  not  anticipated  are  items  of 
current  revenue  which  have  not  been  set  forth  in  the  budget. 
They  cover  only  items  of  revenue  accruing  during  the  fiscal 
period  under  review.  For  instance,  additional  taxes  of  prior 
years  would  not  be  miscellaneous  revenues  not  anticipated  for  the 
current  fiscal  year.  They  would  be  direct  credits  to  the  surplus 
revenue  account. 

e.  Interest  on  bank  deposits  should  be  accrued  up  to 
December  31st  of  the  year  under  review  and  taken  as  a  revenue 
for  that  year.  Interest  on  deposits  accrued  on  balances  in  the 


capital  division  should  also  be  taken  as  a  current  revenue  and 
should  not  be  placed  to  the  credit  of  the  capital  improvement 
account. 

1 6.  Expenditures  and  Disbursements.  4 

a.  All  disbursements  must  be  verified: 

1.  As  to  correctness  of  amount. 

2.  As  to  being  a  proper  charge  to  the  account 

( not  only  as  to  purpose  but  also  as  to  fiscal 
period). 

3.  As  to  proper  authorization. 

4.  As  to  method  of  payment. 

5.  As  to  legality. 

Note  item  i6a2.  It  is  not  proper  to  charge  an  appro¬ 
priation  account  of  any  year  with  a  disbursement  for 
any  other  year. 

b.  Sections  15  and  16  apply  not  only  to  the  accounts  of 
the  Collector  and  Treasurer,  but  to  any  and  all  accounts  of  any 
and  all  officials  of  the  county  or  municipality  as  the  case  may  be. 
such  as  Sheriff,  Surrogate,  Register,  Mayor,  Clerk,  Overseer  of 
the  Poor,  etc.,  etc.,  and  to  any  and  all  boards  or  departments, 

such  as  Board  of  Health.  Park  Commission,  Library,  Almshouse,  ^ 
Hospital,  Water  and  Electric  Light  Departments,  etc.,  etc. 

Note:  The  only  exception  to  the  above  is  the  Sinking 
Fund  Account.  There  is  no  objection,  however,  if  it 
is  desired,  to  have  an  audit  of  this  fund  made  by  the 
municipal  accountant,  but  it  must  be  thoroughly  under¬ 
stood  that  the  only  official  audit  of  any  sinking  fund  is 
that  made  by  the  Department  of  Municipal  Accounts  as 
provided  by  statute. 

c.  Disbursements  should  be  shown  itemized  as  to  pur¬ 

pose  as  well  as  to  fiscal  period.  For  instance,  if  the  balance  sheet 
at  the  beginning  of  the  period  shows  a  certain  liability  due  on 
account  of  local  district  school  taxes  and  that  liability  is  satisfied 
during  the  period  under  review,  it  should  be  stated  separately  and 
not  combined  with  any  payments  made  on  account  ot  the  same 
purpose  or  object  for  the  current  period.  The  same  holds  true 
with  regard  to  the  disbursements  made  which  are  chargeable  to 
reserves  which  have  been  set  up  as  liabilities,  or,  i:i  fact,  any 
disbursements  cn  account  of  prior  years.  4 

17.  Budget. 

d.  It  will  be  noted  from  the  accompanying  form  that 
it  is  necessarv  to  set  up  the  budget  and  comp)are  with  the  budget 


10 


the  operations  and  transactions  of  the  fiscal  period.  It  is  axio¬ 
matic  that  the  total  of  the  anticipated  revenues  must  equal  the 
appropriations,  then  as  noted  on  the  form  the  excesses  or  deficits 
in  the  revenues  and  appropriations  are  treated  separately  and 
recapitulated  under  specific  heads. 

h.  Overexpenditures  of  appropriations  or  expenditures 
in  the  absence  of  appropriations  to  which  such  expenditures  can 
properly  be  charged  is  a  misdemeanor  under  the  laws  of  the  State 
and  as  such  is  punishable  by  a  fine  of  not  more  than  Si,ooo  and 
three  years  in  prison.  In  order  to  minimize  such  overexpendi¬ 
tures,  section  19  of  the  Budget  Act  provides  for  transfers,  be¬ 
tween  appropriation  accounts  during  the  last  two  months  of  the 
fiscal  year.  Such  transfers  must  be  made  by  resolution  of  the 
governing  body  transferring  a  certain  definite  sum  from  a  par¬ 
ticular  item  of  appropriation  to  another  particular  item  of  appro¬ 
priation.  Such  resolutions  should  be  embodied  in  the  minutes. 
In  the  absence  of  such  resolutions  regularly  passed  and  recorded 
the  appropriations  must  stand  as  originally  made  in  the  budget. 
Any  overexpenditure  of  any  appropriation  must  be  shown  as 
such  and  carried  as  a  deferred  asset  to  be  covered  in  a  succeeding 
budget.  It  is  not  permissible  to  wash  overexpenditures  of  certain 
appropriations  against  unexpended  balances  in  other  appropria¬ 
tion  accounts.  Transfers  were  either  made  or  they  were  not  made. 
If  not  made  and  made  properly  they  cannot  be  considered.  In 
this  connection  it  is  necessary  to  state  that  the  law  does  not  permit 
of  transfers  either  to  or  from  the  contingent  expense  appropria¬ 
tion.  Therefore,  no  such  transfers  should  be  shown  on  the 
reports  even  though  they  were  properly  authorized.  The  govern¬ 
ing  body  not  having  power  to  authorize  any  such  transfer,  the 
result  is  the  same  as  if  it  had  not  been  made. 

18.  Cash — All  cash  balances  must  be  verified  by  the  depository 
or  depositories  and  the  balances  shown  by  the  books  reconciled 
with  those  of  the  depositories. 

19.  Current  Duplicate. 

a.  Under  this  head  should  be  shown  only  the  prop¬ 
erty  (real  and  personal)  and  poll  taxes.  Franchise  and  gross 
receipts  taxes  are  not  part  of  the  duplicate  and  should  not  be 
shown  as  such.  On  the  other  hand,  the  bank  stock  tax  due  to 
the  method  of  its  assessment  and  collection  is  taken  into  con¬ 
sideration  with  the  levy  of  the  property  tax.  The  County  Board 
of  Taxation  has  before  it  when  the  tax  levy  is  made  the  amount 
of  Bank  Stock  Tax  levied  which  is  due  to  a  particular  taxing 
district.  This  amount  is  deducted  from  the  “Amount  to  be 


raised  by  Taxes”  certified  to  the  Board  and  the  rate  is  struck 
on  the  balance.  Thereafter  the  amount  of  the  Bank  Stock  Tax 
is  paid  to  the  collector  of  the  taxing  district  by  the  County 
Treasurer  and  in  this  way  the  full  requirement  of  the  “amount 
to  be  raised  by  taxes”  should  be  realized.  It  will  be  seen  from 
the  above  that  the  Bank  Stock  Tax,  therefore,  must  be  added  to 
the  property  taxes  yielded  by  the  duplicate  in  order  to  arrive 
at  the  proper  figure  for  comparison  with  the  “amount  to  be  raised 
by  taxes”  as  stated  in  the  budget. 

b.  The  Second  Class  Railroad  Tax  is  a  property  tax, 
pure  and  simple,  differing  from  other  real  estate  taxes  only  in  the 
manner  of  its  assessment,  levy  and  collection.  The  tax  is  levied 
on  the  second  class  railroad  property  at  the  municipal  rate.  This 
item  is  shown  as  a  separate  item  on  the  accompanying  form 
merely  to  make  it  stand  out  and  so  that  it  will  not  be  overlooked. 

c.  So  far  as  this  department  is  concerned,  it  is  not 
necessary  to  show  any  “Added  Taxes”  on  the  current  duplicate. 
In  other  words,  this  department  is  not  concerned  with  how  the 
taxes  got  on  the  duplicate,  but  with  the  amount  which  the  duplir 
cate  yields,  as  it  stands,  with  clerical  and  mathematical  errors 
corrected.  When  this  amount  is  arrived  at,  by  deducting  the 
stated  requirements  for  other  purposes,  such  as  State  Road,  State 
School,  County,  Local  School,  etc.,  the  amount  of  taxes  yielded 
by  the  duplicate  available  for  local  municipal  purposes  is  deter¬ 
mined.  This  is  the  amount  which  is  comparable  with  the 
“amount  to  be  raised  by  taxes”  as  set  forth  in  the  budget. 

20.  Unexpended  Balances  Account. 

a.  This  account  normally  should  be  subject  to  two 
credits  and  one  debit.  The  credits  are  “additional  taxes”  and 
“unexpended  balances  of  appropriation  accounts.”  The  debit  is 
“taxes  remitted.” 

b.  The  “additional  taxes”  may  be  a  deficit  instead  of 
an  excess,  in  which  case  the  deficit  would  appear  as  a  debit  in¬ 
stead  of  a  credit.  The  unexpended  balances  of  appropriations  is 
just  what  the  name  implies.  Taxes  remitted  include  all  losses  of 
tax  revenue  for  all  years  such  as  remissions,  cancellations,  abate¬ 
ments  and  discount  for  prepayment  of  taxes.  If  the  credits  in 
this  account  exceed  the  debits,  the  difference  is  a  credit  to  the 
surplus  revenue  account.  If,  on  the  other  hand,  the  debits  exceed 
the  credits,  the  balance  must  be  carried  forward  as  a  deferred 
asset,  to  be  covered  by  an  appropriation  in  a  succeeding  budget 
under  the  head  of  “Deficit  Unexpended  Balances  .\ccount  19 — .” 

c.  If  the  unexpended  balances  account  shows  a  deficit 
for  two  succeeding  years  it  is  not  proper  to  combine  these  deficits 


into  one  amount.  The  balance  for  each  year  must  stand  as  a 
separate  item  until  covered  by  an  item  of  appropriation  in  some 
succeeding  budget. 

21.  Surplus  Revenue. 

a.  This  account  is  not  subject  to  any  debit  other  than 
“Surplus  Revenue  Appropriated”  in  the  budget.  This  statement 
must,  of  course,  be  modified  by  the  provisions  of  sections  8  and 
17,  covering  transfers  to  surplus  revenue  reserve  and  a  loan  in 
the  last  month  of  the  year  to  cover  a  deficit  in  miscellaneous 
revenues  anticipated,  respectively.  On  the  other  hand,  the  sur¬ 
plus  revenue  account  is  always  open  to  credits.  As  noted  in  the 
report,  these  credits  are  summed  up  under  certain  specific  heads. 
The  item  of  “other  or  additional  surplus  revenue”  is  to  cover 
revenues  realized  during  the  year  which  for  one  reason  or  an¬ 
other  were  not  taken  into  consideration  in  the  surplus  revenue  at 
the  beginning  of  the  year.  Schedules  should  always  be  furnished 
showing  the  items  which  make  up  “other  or  additional  surplus 
revenue.” 

h.  Surplus  revenue  is  the  excess  of  assets  over  liabili¬ 
ties  in  the  current  division  of  accounts.  It  is  not  proper,  there¬ 
fore,  to  have  any  account  such  as  “surplus”  or  “general  surplus,” 
in  addition  to  the  surplus  revenue  account  in  the  current  division. 

22.  Local  School  District  Taxes. 

a.  There  is  no  essential  difference  between  Article  VI 
(city)  and  Article  VII  (country)  school  districts,  so  far  as  the 
accounting  or  report  is  concerned.  There  is  a  difference  in  the 
results  shown ;  that  is,  there  is  practically  certain  to  be  a  balance 
due  the  schools  on  December  31st  of  any  year  in  Article  VI  dis¬ 
tricts.  This  is  proper  and  legal,  and  the  balance  should  be  shown 
as  a  liability  in  the  current  division.  On  the  other  hand,  it  is 
neither  proper  nor  legal  for  the  books  to  show  a  balance  due  the 
school  account  in  Article  VII  districts,  as  the  statute  explicitly 
commands  the  payment  of  all  school  taxes  “on  or  before  De¬ 
cember  15th.”  Of  course,  if  the  liability  exists  it  must  be  shown, 
but  there  should  be  no  liability  on  December  31st  in  Article  VII 
districts  on  account  of  schools,  and  if  the  law  is  complied  with 
there  will  be  none. 

difiference,  then,  for  reporting  purposes  is  that  a 
liability  in  Article  VI  districts  is  proper,  while  in  Article  VII 
districts  it  is^  not  proper.  A  schedule  should  be  furnished  in 
Article  VI  districts,  and  in  Article  VII  where  the  law  has  not 


been  observed,  to  show  the  transactions  of  the  year.  Such  a 
schedule  would  show : 

Balance  due  schools  beginning-  of  yeai, .  .  $25,000 

School  tax  levied  for  year,  .  75,000 

$100,000 

Paid  School  Account  during  year,  ....  89,000 

Balance  due  account  school  taxes, .  $11,000 

c.  In  this  connection  it  is  well  to  furnish  a  statement 
showing  in  a  similar  manner  the  transactions  in  connection  with 
other  running  accounts,  which  occur  in  many  places,  such  as 
franchise  and  gross  receipts  taxes,  which  never  seem  to  be  paid 
in  full  at  the  close  of  any  fiscal  period. 

23.  Emergency  Appropriations. 

a.  These  appropriations  have  proven  troublesome  to 
many.  Being  appropriations,  they  are  credits.  The  correspond¬ 
ing  debits  are  “Emergency  Revenues.”  The  appropriation  may 
be  distributed  and  shown  in  addition  to  the  regular  appropriation 
of  the  same  name,  e.  g. :  The  regular  appropriation  for  police  is 
$10,000.  It  is  found  necessary  to  create  an  emergency  appro¬ 
priation  of  $1,000  for  preservation  of  public  order.  This  may 
be  shown  as  follows : 

Police  (E).  $1,000  directly  beneath  the  regular 

appropriation  for  Police  purposes.  In  a  similar  manner  emer¬ 
gency  appropriations  may  be  shown  for  Streets  and  Highways, 
Health,  etc.,  or  for  any  purpose  for  which  an  emergency  appro¬ 
priation  may  be  lawfully  made.  The  result  will  be  then  that 
the  total  of  the  appropriation  side  of  the  budget  will  be  the  sum 
of  the  original  budget  appropriations  plus  the  emergency  appro¬ 
priations.  To  bring  the  two  sides  of  the  budget  into  balance  it 
is  necessary  to  add  to  the  total  of  the  anticipated  revenues  as 
contained  in  the  original  budget  the  amount  of  the  emergency 
appropriations  under  the  head  “Emergency  Revenues”  either  as 
one  item  or  several  items,  thus : 

Total  anticipated  revenues  (budget),  $65,000.00 


Emergency  revenues, .  3,000.00 


Total,  .  $68,000.00 

The  emergency  appropriations  were  as  follows: 

Police  (E),  .  $1,000.00 

Streets  and  Highways  (E) .  1,600.00 

Health  (E),  .  400.00 


These  appropriations  would  appear  singly  directly  beneath  the 
regular  appropriations  of  the  same  name  and  the  total  would  be 
the  original  budget  appropriations  of  $65,000  plus  the  $3,000 
emergency  appropriation  or  $68,000,  which  equals  the  amount 
of  the  total  anticipated  revenues. 

b.  Emergency  appropriations  are  subject  to  the  same 
treatment  as  regular  appropriations  as  to  reserves  and  the  unex¬ 
pended  balances  lapse  into  the  unexpended  balances  account. 
Emergency  appropriations  are  not  subject  to  transfer. 

c.  In  this  connection  a  word  may  not  be  amiss  as  to : 

1.  When  may  emergency  appropriations  be  made? 
Section  25  of  the  Budget  Acts  answers  this  in  the  open¬ 
ing  w^ords  of  the  section — “Upon  the  happening  of  any 
event,  etc.”  This  is  clear  and  unmistakable.  It  does 
not  mean  ten  months  later  nor  six  months  later  nor  a 
w  eek  later  but  when  the  emergency  happens.  That  is 
w^hen  an  emergency  appropriation  can  lawfully  be  made. 

2.  What  is  an  emergency?  This  is  also  defined  in 
the  same  section  (25)  of  the  Budget  Act.  It  is  not  to 
enable  a  municipality  to  do  something  in  July  which 
was  omitted  either  knowingly  or  otherwise  from  the 
January  budget.  It  is  not  a  means  of  adding  to  an  ap¬ 
propriation  which  is  running  or  has  run  short.  There 
seems  to  be  a  tendency  to  make  up  for  deficiencies  in 
foresight  by  stretching  the  emergency  section  to  the 
limit  and  even  beyond.  The  language  of  section  25  is 
broad  but  it  has  its  limits  and  these  should  not  be  ex¬ 
ceeded. 

24.  Tax  Overpayments. 

Payments  of  taxes  which  are  in  excess  of  the  amount 
due  should  be  scheduled  and  the  total  set  up  as  a  liability  in  the 
balance  sheet.  Then,  if  the  refund  is  made  the  charge  is  made 
to  the  open  balance  sheet  account — a  simple  matter.  If  the  lia¬ 
bility  is  not  set  up  the  question  arises  as  to  what  account  can  be 
charged.  The  usual  answer  is  “Surplus  Revenue  Account,” 
which  is  not  correct.  Any  other  procedure  than  that  outlined 
above  is  irregular.  Subsequently,  if  it  develops  that  the  refunds 
do  not  have  to  be  made  the  amounts  of  overpayments  may  be 
closed  out  to  the  Surplus  Revenue  Account. 

25.  Reserve  Accounts. 

a.  A  distinction  is  necessary  between  “reserve  accounts’' 
and  the  “reserve  division  of  accounts.”  A  reserve  from  a  cur¬ 
rent  appropriation  account  to  meet  a  “purpose  unfulfilled  there- 


under”  is  simply  a  liability  in  the  current  division  and  should  be 
so  shown.  No  result  is  obtained  by  transferring  such  “reserve 
accounts”  to  the  “reserve  division”  except  confusion  and  com¬ 
plication,  and  it  should  be  avoided.  The  “reserve  division  of 
accounts”'  is  for  pension  funds  and  sinking  fund  accounts  where 
a  reserve  is  accumulated  over  a  term  of  years  to  meet  a  future 
liabilitv. 

b.  Under  paragraph  i6a2  expenditures  and  disburse¬ 
ments  must  be  verified  as  to  being  a  proper  charge  to  the  account, 
not  only  as  to  purpose  but  also  as  to  fiscal  period.  It  appears  that 
this  matter  has  not  been  taken  seriously  but  it  is  very  important, 
and  the  accountant  must  assure  himself  that  no  charges  of  prior 
years  have  been  charged  to  the  appropriation  accounts  of  the 
current  vear.  Where  it  is  found  that  sufficient  reserves  have  not 
been  set  up  to  meet  the  charges  of  former  years,  it  will  be  neces¬ 
sary  to  revise  the  previous  balance  sheet  and  set  up  sufficient 
reserves  showing  the  resulting  overexpenditures  if  there  be  any. 
At  the  close  of  the  year  under  audit  it  is  necessary  to  establish 
the  necessary  appropriation  reserves  for  outstanding  commit¬ 
ments.  If  the  reserves  should  prove  to  be  insufficient  it  is  neces¬ 
sary  to  withhold  payment  until  a  specific  appropriation  has  been 
made  for  each  individual  claim  in  a  succeeding  budget. 

26.  Appropriations. 

a.  Reference  has  been  made  to  overexpenditures  of 
appropriations  and  exi>enditures  without  appropriation.  This 
leads  to  the  subject  of  appropriations  and  how  and  when  and  for 
what  purposes  they  may  be  made.  Appropriations  may  be  made 
in  three  ways  and  onlv  three : 

1.  Budget. 

2.  Emergency  Resolution. 

3.  Bond  Ordinance. 

h.  An  appropriation  may  be  made  in  the  budget  for 
any  purpose  for  which  the  municipality  may  lawfully  expend 
moneys.  There  is  no  statutory  limit  to  the  amount  of  the  budget 
appropriation.  The  time  limit  is  the  approval  of  the  budget. 
After  the  budget  is  approved  no  new  item  of  appropriation  other 
than  mandatory  appropriations  may  be  added  except  by  discard¬ 
ing  entirely  the  budget  which  has  been  approved  and  starting 
anew. 

c.  An  appropriation  may  be  made  at  any  time  by  reso¬ 
lution  to  provide  for  an  emergency.  There  is  no  limit,  by  statute, 
of  the  amount  of  an  emergency  appropriation.  The  purposes  for 
which  such  an  appropriation  may  be  made  are  defined  in  section 
25  of  the  Budget  Act. 


d.  An  appropriation  may  be  made  at  any  time  by  ordi¬ 
nance.  The  purposes  for  which  such  an  appropriation  may  be 
made  are  those  for  which  bonds  may  be  issued.  The  amoimt 
may  not  be  in  excess  of  the  debt  limit.  (See  Chapter  252,  P.  L. 
1916,  its  amendments  and  supplements,  on  this  matter.) 

27.  Fire  and  Light  Districts. 

a.  Districts  for  fire  and  light  purposes  are  authorized 
by  statute  for  specific  objects,  namely,  to  render  a  specific  service 
to  a  limited  territory  at  the  expense  of  the  taxpayers  of  that 
territory.  There  is  no  support,  therefore,  either  in  law  or  as  a 
business  proposition  to  put  upon  the  township  at  large  any  portion 
of  the  cost  of  the  particular  service  rendered  to  the  district.  It  is 
equally  true  that  any  excess  tax  levied  upon  the  property  in  the 
district  belongs  to  the  district  and  not  to  the  township  at  large. 
The  treasurer  of  the  township  is,  however,  the  custodian  of  the 
funds  of  the  district,  holding  such  funds  for  the  disposal  of  the 
authorities  of  the  district.  The  result  is  that  a  distinction  must 
be  made  between  general  township  taxes  and  district  taxes.  The 
taxes  of  the  district  should  be  turned  over  to  the  treasurer  of  the 
township  by  the  collector  by  means  of  a  separate  check  and  the 
treasurer  should  deposit  them  in  a  separate  fund  subject  to  the 
orders  of  the  commissioners  of  the  district,  thus  throwing  this 
matter  into  a  “Trust”  account.  It  should  be  noted  that  the  col¬ 
lector  has  no  authority  to  pay  any  collections  of  district  taxes  to 
anyone  but  the  general  treasurer  of  the  townships — not  to  the 
treasurer  of  the  district.  In  fact,  there  should  be  no  treasurer  of 
the  district,  for  as  stated  above,  the  township  treasurer  is  the  cus¬ 
todian  of  the  district  funds. 

b.  This  means  that  a  separate  accounting  must  be  made 
of  district  funds.  The  amount  of  the  levy  must  be  established  in 
the  same  manner  as  that  of  the  general  township  is  established 
and  the  amount  of  collections  on  account  of  such  levy,  remissions 
and  any  other  credits  noted;  also  the  amount  of  the  warrants  or 
orders  honored  by  the  township  treasurer  on  account  of  the  dis¬ 
trict.  The  delinquent  district  taxes  must  be  established  as  well 
as  the  cash  in  the  hands  of  the  township  treasurer  belonging  to 
the  district.  In  fact  a  complete  audit  of  the  finances  of  the  dis¬ 
trict  must  be  made  along  the  lines  of  a  general  audit  of  the  town¬ 
ship’s  finances  and  the  results  incorporated  in  the  township  audit. 
This  holds  no  matter  how  many  districts  there  may  be  in  any 
township. 

Note:  While  sewerage  districts  are  not  numerous 

their  finances  should  be  handled  as  indicated  above. 


28.  Every  report  of  audit  must  contain : 

1.  Certification  to  the  effect  that  the  report  submitted  is  a  true 

and  exact  copy  of  that  furnished  the  governing  body. 

2.  (a)  Comments  on  the  manner  and  method  of  conducting 

public  business  in  the  municipality  or  county  w’hose 
financial  affairs  and  transactions  are  under  review. 

(h)  Bear  in  mind  you  have  pledged  yourself  to  “report  any 
error,  omission,  irregularity,  violation  of  law,  discrep¬ 
ancy  or  non-conformity  to  the  law.” 

(c)  Specific  answers  to  the  following: 

1.  Names  of  officials  who  were  in  office  during  the 

period  covered  by  the  audit — Mayor,  Clerk,  Col¬ 
lector,  Treasurer,  Custodian. 

2.  Are  all  officials  who  handle  funds  of  the  municipality 

bonded?  In  what  amounts? 

3.  Has  a  Surplus  Revenue  Account  been  set  up  and  is 

it  properly  kept? 

4.  Are  general  books  of  account — Cash  book,  journal 

and  ledger — kept?  By  whom? 

5.  Have  the  proper  divisions  of  accounts  been 

established,  i.  e.,  Current,  Trust,  Capital,  and  is  a 
separate  bank  account  being  maintained  for  each? 

6.  What  officials  sign  the  instruments  of  payment? 

7.  Are  all  disbursements  made  by  the  general  treasurer 

for  all  boards  and  departments?  If  not,  what 
are  the  exceptions? 

8.  Are  notes  issued  in  compliance  with  the  statutes? 

Exceptions? 

9.  Are  transfers  between  appropriation  accounts  au¬ 

thorized  by  proper  resolutions  of  the  governing 
body  and  recorded  on  the  minutes? 

10.  In  case  of  overexpenditure  of  appropriation  have 

the  officials  been  notified  of  the  possible  results 
of  their  action? 

11.  Have  payments  been  made  by  the  collector  contrary 

to  the  provisions  of  Chapter  62,  P.  L.  1921  ? 

12.  Have  the  provisions  of  section  610,  Chapter  236, 

P.  L.  1918,  been  observed? 

13.  Has  the  publication  required  by  section  2,  Chapter 

268,.  P.  L.  1918,  been  made? 

14.  Is  the  treasurer  of  a  township  a  member  of  the  town¬ 

ship  committee? 


18 


15-  Has  the  current  duplicate  been  added  and  proved, > 
and  have  the  taxes  outstanding  for  current  and  all  • 
prior  years  been  established? 

16.  Have  all  remissions,  exemptions,  deductions,  etc.^ 

been  checked  as  to  proper  authorization? 

17.  Have  tax  title  liens  been  properly  established  and 

have  transfers  of  taxes  for  subsequent  years  been 
accumulated  to  the  original  tax  title  certificate? 

29.  The  report  on  the  “Current^'  division  of  accounts  must 
contain : 

1.  Balance  Sheet — January  i. 

2.  Balance  Sheet — December  31. 

3.  Revenues  and  Expenditures. 

4.  Unexpended  Balances  and  Surplus  Revenue  Accounts, 

5.  Receipts  and  Disbursements. 

6.  Cash  Reconciliation. 

7.  Statement  of  taxes  for  every  year  for  which  there  are 

any  taxes  outstanding  which  have  not  been  lawfully 
remitted,  etc. 

8.  Statement  of  duplicate  for  the  current  year. 

9.  Analysis  of  Property  Tax. 

10.  Statement  of  Taxes  Remitted,  etc. 

11.  List  of  overpa3^ments  of  taxes. 

12.  Statement  of  tax  title  liens. 

13.  Statement  of  Indebtedness. 

And  for  municipalities  of  $8,000,000  assessed  valua¬ 
tions  or  less: 

14.  List  of  delinquent  taxes  for  each  year  for  which  there 

are  any  taxes  outstanding  which  have  not  been  lawfully 
remitted,  etc.,  giving  page,  line,  name  and  amount  of 
each  item  of  tax  for  each  and  every  year,  and  the 
amount  of  the  total  of  such  lists  for  each  and  every 
year. 

15.  List  of  Tax  title  liens  on  each  and  every  parcel  of  real 

estate,  the  tax  title  of  which  is  owned  by  the  munici¬ 
pality. 


19 


^  '  T  UT'i|€iin*ivi€»  srvsnM  ^j^y^Tonija^if 

K^,  ;  i(^ES0H  irm  j^it  ^4  ?flr' 


1  ia«o  tgjil  • 


■fc- 


2inr;p5oA 


^Tfi 

vltul' 

%  -.^  > 


1 


r/« 


'.‘fiif  i^nm  I  i-TJf,  yuH,  ‘ijWK*  hi’iju^jl  hi 


f^-Sl 


il^'  •X•4i’^C'7V.  •#>.' .!»*(:• 


*■  *  ^ 


t 

BR-  ■*•  ■.•  I  -  ■■'.v*«v.'''.';  "k; 


CASH  RECEl 


BALANCE 

JAN. 


CASH 

DISBURSEME 


CHART  OF  ACCOUNTS. 


20 


The  following  sample  audit  is  submitted  as  a  form  for  the 
general  setting  up  of  the  audit. 

Particular  attention  should  be  paid  to  the  setting  up  of  tax 
statements,  tax  duplicates  and  analysis  of  property  tax  as  these 
forms  have  proven  their  worth  and  should  be  followed. 

The  same  general  form  of  balance  sheets,  receipts  and  dis¬ 
bursements,  statements,  etc.,  should  apply  to  all  divisions  of 
accounts,  and  all  auditors  should  follow  this  form  in  setting  up 
reports  of  audits. 


BALANCE  SHEETS,  1920. 

ASSETS. 


January  i. 

December  jj. 

Cash,  . 

$3,232  48 

$2,637  33 

Taxes,  1917,  . 

4  51 

4  51 

1918, . 

1,387  66 

918  37 

1919,  . 

12,858  54 

675  29 

1920,  . 

11,207  32 

Franchise  Tax,  . 

469  78 

1,140  00 

Gross  Receipts  Tax,  . 

278  22 

400  87 

Tax  Title  Liens, . 

670  10 

1,318  06 

Deficit  Miscellaneous  Revenues, 

IQ20 . .  ...  . . 

338  65 

..  ..I..I..I.  .  .  .  .  .  .  .  .  .  . 

Overexpenditure  Appropria- 

tions,  1920, . 

200  00 

Emergency  Revenues,  ........ 

1,000  00 

Deficit — Unexpended  Balance 

Account,  1920, . 

21 1  03 

$18,901  29 

$20,051 43 

EIABITITIES  AND  SURPLUS. 

January  7. 

December  j7. 

Tax  Revenue  Notes,  . 

$6,000  00 

$10,500  00 

Overpayments  of  Taxes,  .... 

14  53 

II  52 

Reserves  (appropriation),  ... 

897  63 

1,540  40 

Emergency  Note,  . 

1,000  00 

Surplus  Revenue,  . 

11,989 13 

6,999  51 

$18,901  29 

$20,051 43 

21 


REVENUES,  1920. 


Surplus  Revenue  Appropriatec^ . . 
Miscellaneous  Revenues  Antici¬ 
pated: 

Licenses . 

Fines  and  Penalties,  . 

Tax  Search  Fees, . 

Sewer  Permits,  . 

Interest  and  Costs, . 

Franchise  Taxes,  . 

Gross  Receipts  Taxes,  . 

Poll  Taxes, . 

Dog  Taxes, . 

Bank  Stock  Tax, . 

Second  Class  R-  R.  Tax,  . . . . 


Budget. 

Realized. 

Excess. 

$5,000  00 

$5,000  00 

$500  00 

$580  50 

$80  50 

200  00 

147  00 

100  00 

^  00 

600  00 

691  46 

91  46 

300  00 

332  06 

32  06 

4,000  00 

4,564  46 

564  46 

1,000  00 

1,037  87 

37  87 

500  00 

510  00 

10  00 

100  00 

None 

400  00 

None 

600  00 

None 

$8,300  00  $7,961  35  $816  35 


Miscellaneous  Revenues  not  An¬ 
ticipated: 

Refund  Personal  Telephone 
Calls,  .  $10  38 

Amount  to  be  Raised  by  Taxa¬ 
tion,  . $29,700  00  $28,659  56 

Total  Budget  Revenues,  . $43,000  00 

Emergency  Revenues  (Police),  .  1,000  00 


Total  Revenues,  . $44,000  00 


recapitulation. 

Surplus  Revenue  Appropriated . 

Excess  Miscellaneous  Revenues  Anticipated  (Deficit), 

Miscellaneous  Revenues  not  Anticipated . 

Additional  Tax  Revenues  (Deficit),  . 

Emergency  Revenues  (Police), . 


Expenditures,  1920. 


Appro¬ 

priations. 


General  Government: 
Administrative  and 

Executive,  . $3, 500 

Assessment  and  Coll. 

of  Taxes, .  1400 

Interest  on  Current 

Loans,  .  500 

Streets  and  High¬ 
ways,  . 15,000 

Preservation  of  Life 
and  Property: 

Police,  .  5,000 

Police  Emergency,  .  1,000 
Fire .  4,600 


Transfers.  Expenditures. 


To. 

From. 

Reserved. 

Disbursed. 

•  •  •  • 

•  •  •  • 

$3,248 

41 

•  •  •  • 

•  •  •  • 

1,400 

00 

•  •  •  • 

•  •  •  • 

348 

00 

•  •  •  • 

$400 

$1,180 

73 

13,007 

54 

$300 

•  •  •  • 

5,232 

66 

•  •  •  • 

•  •  •  • 

67 

990 

00 

200 

•  •  •  • 

359 

4,340 

33 

Deficit. 


$53  00 
2  00 


100  00 
400  00 
600  00 


$1,155  00 


$1,040  44 


$5,000  00 
338  65 
10  38 
14140  44 
1,000  00 


Unex¬ 

pended 

Balance. 


$251  59 


151  20 
41 1  73 


67  34 
10  00 
100  00 


22 


Appro-  Transfers. 


Expenditures. 


Unex~ 


Health  and  Charities: 

Health,  . 

Poor,  . 

Sewer  Maintenance, 
Free  Public  Library. 


priations. 

To. 

From. 

Reserved. 

Disbursed. 

Balance. 

» 

.  1,000 

•  •  •  • 

•  •  •  • 

1,159 

86 

*159 

86 

600 

•  •  •  • 

•  •  •  • 

640 

*40 

14 

.  3,000 

•  •  •  • 

200- 

2,764 

S3 

35 

47 

.  1,000 

•  •  •  • 

•  •  •  • 

966 

12 

33 

88 

.  5,500 

100 

•  •  •  • 

5,542 

97 

57 

03 

700 

•  •  •  • 

•  •  •  • 

691 

89 

8 

II 

.  1,200 

•  •  «  • 

•  •  •  • 

1,176 

00 

24 

00 

$44,000 

$600 

$600 

$1,540  40 

$41,509 

25 

$1,150 

35 

*Overexpenditure. 


Recapitulation. 


Appropriations,  Budget,  .  $43,000  00 

Appropriations,  Emergency,  .  1,000  00 


Overexpenditures, 


$44,000  00 
200  00 


Reserved,  . 

Disbursed,  . 

Unexpended  Balances, 


$1,540  40 
41.509  25 
1,150  35 


$44,200  00 


$44,200  00 


1920. 

UNEXPENDED  BALANCES  AND  SURPLUS  REVENUE  ACCOUNTS. 

Unexpended  Balances  Account. 

Additional  Tax  Revenues  Unexpended  Balances  Ap- 

(Deficit),^ .  $1,04044  propriations,  .  $1,150  35 

Taxes  Remitted,  .  320  94  Balance  Dec.  31st,  1920,  . .  21 1  03 


$1,361  38 


$1,361  38 


Surplus  Revenue  Account. 


Surplus  Revenue  Appro¬ 
priated,  .  $5,000  00 

Balance  Dec.  31st,  1920,  .. .  6,9<;9  51 


$11,999  51 


Detail  oe  “Other 
Added  Taxes  of  the  Year  1918, . 


Balance  Jan.  ist,  1920,  ....  $11,982  8i 
Miscellaneous  Revenues 

not  Anticipated, .  lo  38 

Other  Surplus  Revenue,  . .  6  32 


Sii,999  51 


Surplus  Revenue." 
.  $6  32 


23 


1920. 


CASH  RECEIPTS  AND  DISBURSEMENTS. 

Receipts. 

Cash  Balance  January  ist,  1920,  . .  $3,232  48 

Taxes,  1918,  .  42  90 

Taxes,  1919,  .  11,981  50 

Taxes,  1920,  .  99, 815  50 

Franchise  Tax,  1919,  .  369  78 

Franchise  Tax,  1920,  .  3,524  46 

Gross  Receipts  Tax,  1919,  .  278  22 

Gross  Receipts  Tax,  1920,  .  637  00 

Licenses,  .  580  50 

Fines  and  Penalties,  .  147  00 

Tax  Search  Fees,  .  ^00 

Interest  and  Costs,  .  332  06 

Sewer  Permits,  .  691  46 

Telephone  Calls  (Refund) .  10  ^ 

Bank  Stock  Tax,  .  372  13 

Tax  Titles  Redeemed,  .  31  64 

Overpayments  of  Taxes,  . •  • .  4  99 

Tax  Revenue  Notes,  1920,  .  10,500  00 

Emergency  Note .  1,000  00 


$133,650  00 

1920. 

CASH  RECEIPTS  AND  DISBURSEMENTS. 

DISBURSEMENTS. 

Administrative  and  Executive,  .  $3,248  41 

Assessment  and  Collection  of  Taxes,  .  1400  00 

Interest  on  Current  Loans,  .  348  80 

Streets  and  Highways,  1919  a/c .  ^7  63 

Streets  and  Highways,  1920  a/c,  .  13,007  54 

Police .  5,232  66 

Police  Emergency,  .  990  00 

Fire,  . 4,340  33 

Health,  .  1,159  86 

Poor,  .  640  14 

Sewer  Maintenance,  •  • .  2,764  53 

Free  Public  Library,  .  966  12 

Street  Lighting,  .  5,542  97 

Shade  Trees,  .  691  89 

Contingent  Expense .  1,176  00 

Tax  Overpayments  Refunded,  .  8  00 

Tax  Revenue  Notes,  1919,  . •  • .  6,000  00 

State  Taxes,  Road,  .  3418  16 

State  Taxes,  School,  .  8,371  06 

County  Taxes .  21,517  81 

Local  School  Taxes,  .  49,290  76 


$131,012  67 

Balance  December  31,  1920 .  2,637  33 


$133,650  00 

24 


CASH  RECONCILIATION. 


Certificate  of  Depository, 
Checks  Outstanding — 

No.  6351 . 

No.  6352,  . 

No.  6379,  . 


$3737  33 


$50  00 
50  00 
1,000  00 

-  1,100  00 


$2,637  33 


STATEMENT  OF  TAXES,  1920. 
1917. 


Outstanding  January  i,  1920,  .  $4  5^ 

Balance  December  31,  1920,  .  $4  5i 


1918. 

Outstanding  January  i,  1920,  . 

Taxes  added  in  1920,  . 


Collected  in  1920,  . 

Remitted  in  1920,  . 

Transfers  to  Tax  Title  Liens, 
Balance  December  31,  1920,  . 


1919- 

Outstanding  January  i,  1920,  . 

Collected  in  1920,  . 

Transfers  to  Tax  Title  Liens,  . 

Balance  December  31,  1920,  . 

Duplicate  for  1920. 

Property,  Real  and  Personal,  . 

Taxes  added  by  Collector,  . 

Second  Class  R.  R.  Tax,  . . . 

Poll  Taxes,  . 


$1,381  34 
6  32 


$1,387 

66 

$42 

90 

241 

14 

185 

25 

918 

37 

$1,387 

66 

$12,858 

54 

$11,981 

50 

201 

75 

675 

29 

$12,858 

54 

$110,226 

38 

lOI 

00 

557 

84 

$110,885  22 
510  00 


Total  Duplicate,  .  $111,395  22 

Collected  in  1920,  .  $99,815  50 

Remitted  in  1920,  .  79  80 

Transfers  to  Tax  Title  Liens,  .  292  60 

Outstanding  December  31,  1920,  .  11,207  32 

-  $111,395  22 


Analysis  of  Property  Tax. 


Property  Tax,  .  $110,885  22 

Bank  Stock  Tax,  .  372  13 

„  -  $111,257  35 

State  Road  Tax,  .  $3,418  16 

State  School  Tax .  8,371  06 

County  Tax,  .  21,517  81 

Local  School  Tax,  .  49,290  76 

.  .  -  $82,597  79 

Tax  for  Local  Municipal  Purposes,  .  28,659  56 


$111,257  35 


25 


Taxes  Remitted  (Recapitulation). 

For  the  year  1918,  .  $241  14 

For  the  year  1920,  .  79  So 


$320  94 

Statement  of  Tax  Title  Liens. 

Balance  January  i,  1920, .  $670  lO 

Transfers  from  1918  Taxes .  185  25 

Transfers  from  1919  Taxes,  .  201  75 

Transfers  from  1920  Taxes, .  292  60 


mm.,  ,  ^^'349  7e 

Tax  Titles  Redeemed, .  $31  64 

Balance  December  31,  1920, .  1,318  06 


$1,349  70 

Statement  of  Franchise  Taxes. 

Balance  Unpaid  January  i,  1920, .  $469  78 

Levy  of  1920, .  4,564  46 

-  $5,034  24 

Collected  in  1920,  on  account  1919, .  $369  78 

Collected  in  1920,  on  account  1920, .  3,524  46 

-  3,894  24 


Balance  Unpaid  December  31,  1920, .  $1,140  00 

New  Jersey  Gas  Co., .  $100  00 

Union  Traction  Co., .  1,040  00 

-  $1,140  00 

Statement  of  Gross  Receipts  Taxes. 

Balance  Unpaid  January  i,  1920, .  $278  22 

Levy  of  1920,  .  1,037  87 

- $1,316  09 

Collected  in  1920,  on  account  of  1919, .  $278  22 

Collected  in  1920,  on  account  of  1920, .  637  00 

-  91S  22 


Balance  Unpaid  December  31,  1920, .  $400  87 

New  Jersey  Gas  Co.,  .  $50  23 

Union  Traction  Co., .  350  64 

-  $400  87 

Statement  of  Indebtedness. 

Issued.  Mature. 


Tax  Revenue  Notes,  1920 . December  28,  1920  Demand,  5,500  00 

Emergency  Note,  1920,  . June  10,  1920  Demand,  1,000  00 


26 


TRUST  ACCOUNTS. 


30.  General. 

a.  Any  municipal  enterprise  or  utility  is  handled  in  the 
trust  division  of  accounts.  The  reason  for  this  is  that  a  munici¬ 
pal  enterprise  is  supposed  to  be  conducted  without  being  a  burden 
on  general  taxation.  If  the  income  from  the  enterpr-'^e,  after 
providing  for  operating  and  maintenance  charges  and  debt  serv¬ 
ice,  is  not  sufficient,  the  deficit  must  be  made  up  from  general 
taxation  by  a  specific  item  of  appropriation  in  the  budget;  on 
the  other  hand,  if  the  enterprise  yields  a  profit,  such  profit,  or 
any  portion  thereof,  may  be  used,  when  available,  to  reduce 
general  taxation  by  means,  of  an  item  of  miscellaneous  revenue 
in  the  budget.  In  other  words,  the  net  result  of  the  operation  of 
the  enterprise  only  should  appear  in  the  budget  as  use  of  surplus 
or  provision  for  a  deficit,  as  the  case  may  be — the  budget  should 
not  contain  both  the  anticipated  income  and  an  appropriation  for 
any  municipality  enterprise  or  utility.  (See  section  12  e.  Chap. 
192,  P.  L.  1917,  as  amended.) 

b.  Any  improvement  or  service  rendered  for  the  benefit 
of  a  portion  of  the  taxpayers  or  of  all  the  taxpayers  of  a  mu¬ 
nicipality  for  which  the  municipality  acts  simply  as  trustee  or 
agent  is  classified  as  a  municipal  enterprise,  and,  therefore,  comes 
under  the  above  classification.  Under  this  head  are  included 
water  plants,  electric  light  plants,  gas  plants,  assessment  improve¬ 
ments  and  other  items  of  similar  nature  from  which  the  munici¬ 
pality  derives  a  rental  or  revenue  for  service  rendered  or  from 
assessments  against  property  specially  benefited.  On  the  other 
hand,  any  improvement  which  is  to  be  financed  entirely  from 
general  taxation  should  not  be  handled  in  the  trust  division  but 
in  the  capital  division. 

c.  Little  comment  is  needed  as  to  the  precedure  in  con- 

A. 

nection  with  municipal  utilities  such  as  gas,  electric  or  water  ac¬ 
counts,  as  the  precedure  in  connection  with  these  accounts  is  so 
closely  allied  to  commercial  accounting  procedure.  It  has  been 
found  necessary,  however,  to  stress  the  importance  of  establish¬ 
ing  the  income  from  such  utilities  on  an  accrual  basis  and  making 
the  proper  division  between  operating  surplus  and  capital  surplus. 
The  utilities  accounts  must  be  properly  supported  by  a  statement 
of  income  and  expenditure.  In  this  statement  the  income  of  the 
year  must  be  properly  establi.shed  and  all  expenditures  for  the 
year  must  be  charged  against  this  income  in  order  to  carry  out 
the  provisions  of  section  12  e  of  the  Budget  Act  regarding  the 
use  of  trust  surplus  or  provision  for  a  trust  deficit  in  the  municipal 
budget. 


27 


d.  All  charges  for  debt  service  on  account  of  the  utility 
should  be  included  in  the  expenditures  of  the  utility  account. 
Where  an  appropriation  has  been  improperly  made  in  the  current 
budget  to  cover  debt  service  the  appropriation  should  be  trans¬ 
ferred  to  the  trust  division  and  treated  as  income  from  appro¬ 
priation.  In  a  similar  manner  if  an  appropriation  has  been  made 
in  the  current  budget  to  cover  an  operating  deficit  this  also  should 
be  taken  in  the  account  of  the  utility  as  an  income. 

e.  It  should  be  noted  that  debt  service  includes  not  only 
interest  and  principal  of  the  utility  debt,  but  also  sinking  fund 
where  same  is  required. 

/.  Trust  surplus  does  not  automatically  become  a  part 
of  the  current  surplus  revenue.  Trust  surplus  remains  undis¬ 
turbed  unless  and  until  such  surplus  or  a  portion  of  it  is  included 
in  a  current  budget  as  an  item  of  anticipated  revenue.  There¬ 
fore,  if  the  surplus  of  a  utility  for  any  year  is  greater  than  the 
amount  anticipated  as  a  miscellaneous  revenue  in  the  current 
budget,  only  the  amount  anticipated  in  the  budget  should  be 
transferred  from  the  trust  division  to  the  current  division.  Simi¬ 
larly,  if  the  amount  appropriated  in  the  current  budget  to  cover 
a  deficit  or  an  anticipated  deficit  is  not  sufficient,  only  the  amount 
appropriated  should  be  transferred  from  the  current  division  to 
the  trust  division,  leaving  the  balance  to  be  appropriated  in  a  suc¬ 
ceeding  budget. 

g.  As  stated  above,  operating  surplus  and  capital  sur¬ 
plus  should  be  kept  separate,  due  to  the  fact  that  the  former  only 
may  ]ye  used  through  the  budget  to  reduce  taxation,  while  the 
latter  cannot  by  its  very  nature  be  used  for  such  a  purpose. 

h.  The  use  of  trust  surplus  to  reduce  taxation  through 
anticipation  as  an  item  of  miscellaneous  revenue  in  the  budget 
as  provided  by  statute  should  be  given  very  careful  consideration, 
as  while  the  accounts  may  show  a  surplus  it  may  be  only  a  book 
surplus  and  thus  not  available  for  the  reduction  of  taxation.  This 
is  particularly  true  of  assessment  accounts;  for  instance,  on  the 
sale  of  assessment  bonds  $30,000,  the  amount  required,  might 
be  obtained  from  the  delivery  of  twenty-nine  $1,000  bonds.  This 
would  create  a  book  surplus  of  $1,000,  but  this  surplus  will  not 
become  available  for  transfer  to  the  current  account  until  all  the 
assessments  have  been  collected.  Unless  due  consideration  is 
given  to  this  point  the  outcome  may  be  disastrous. 

31.  Assessment  Improvement  Accounts. 

a.  Any  improvement,  financed  by  a  municipality,  the 
cost  of  wffiich  is  to  be  borne  in  whole  or  in  part  by  property  spe- 


28 


cially  benefited  conies  under  the  trust  classification.  The  account¬ 
ing  steps,  in  sequence,  of  an  assessment  improvement  are : 

1.  Ordinance  authorizing  the  improvement,  making  the 

necessary  appropriation  to  cover  the  whole  cost 
thereof  and  providing  for  the  temporary  financing 
thereof. 

2.  Improvements  in  progress  necessitating  payments 

therefor. 

3.  Confirmation  of  assessments  and  fixing  of  munici¬ 

pality's  share. 

4.  Transfer  of  municipality’s  share  to  capital  division. 

5.  Division  of  temporary  indebtedness. 

6.  Issuance  of  bonds,  if  necessary. 

b.  Before  any  contract  can  be  let  for  any  improvement 
or  any  work  done  on  the  improvement  there  must  be  an  authori¬ 
zation  and  appropriation  to  cover  the  cost  or  estimated  cost 
thereof.  One  ordinance  may  embrace  both  authorizations — that 
for  the  improvement  itself  and  that  for  the  incurring  of  the 
indebtedness  or  appropriation — and  also  authorize  the  issuance 
of  temporary  notes  or  bonds  in  an  amount  not  to  exceed  the 
amount  of  the  appropriation.  Attention  is  directed  to  the  fact 
that  expenditure  for  every  trust  and  capital  improvement  is  sub¬ 
ject  to  the  limitation  of  the  appropriation  fixed  by  the  ordinance. 
It  is  necessary  when  the  appropriation  fixed  by  ordinance  is  ex¬ 
hausted  to  cease  work  or  to  provide  an  additional  appropriation 
in  the  same  manner  as  was  done  in  the  case  of  the  original  appro¬ 
priation.  It  is  just  as  improper  and  illegal  to  exceed  the  limits 
of  an  appropriation  fixed  by  ordinance  as  it  is  to  exceed  those  of 
budget  appropriations. 

c.  Under  section  2  of  the  Bond  Act  which  provides 
that  permanent  bonds  covering  assessments  levied  against  prop¬ 
erty  cannot  be  issued  until  the  assessments  have  been  confirmed 
it  becomes  necessary  to  finance  assessment  improvements  by 
means  of  the  issuance  of  temporary  notes  or  temporary  bonds. 
This  is  the  economical  plan  on  which  to  finance  all  improvements, 
but  as  stated,  it  is  absolutely  necessary  in  the  case  of  assessment 
improvements.  The  improvement  should  be  financed  by  notes 
issued  as  and  when  required  and  payable  on  demand  or  at  the 
option  of  the  issuing  municipality.  It  is  simpler  particularly 
where  the  number  of  assessment  operations  is  not  great  to  issue 
notes  for  the  exact  amount  of  bills  to  be  paid  and  periodically  to 
take  up  a  number  of  smaller  notes  by  the  issuance  of  one  or  more 
notes  of  larger  amount  preserving  the  identity  both  as  to  amount 
and  purpose  of  the  old  notes  in  the  new.  By  this  method  when 
an  improvement  is  completed  the  exact  cost  of  the  improvement 

29 


will  be  represented  by  an  equal  amount  of  notes  and  the  subse¬ 
quent  operations  will  be  simplified. 

32.  Improvements  in  Progress. 

a.  “Improvements  in  Progress”  should  be  debited  with 
the  cost  of  the  improvement  and  should  be  supported  by  a  de¬ 
tailed  statement  permitting  ready  checking  of  the  account  from 
balance  sheet  to  balance  sheet.  It  will  be  necessary,  therefore,  to 
show  in  detail  the  charges  made  against  the  improvement,  which 
charges  will  comprise  engineers’  fees,  advertising  costs,  interest 
during  period  of  construction,  payments  to  contractors  and  any 
other  charges  which  are  rightfully  a  part  of  the  cost  of  the  im¬ 
provement.  The  reductions  in  this  account  will  be  assessments 
confirmed,  transfers  to  municipality’s  share,  etc.  Where  the 
provision  of  the  statute  that  interest  during  construction  period 
and  for  six  months  thereafter  shall  be  deemed  part  of  the  cost 
of  the  improvement  is  availed  of  the  fact  should  be  definitely 
established  and  noted. 

b.  It  is  necessary  to  keep  all  interest  on  improvements 
in  progress  separate  from  interest  on  assessments,  as  the  former 
charge  is  a  proper  charge  against  the  improvement  account  itself 
as  a  part  of  the  cost  of  the  improvement,  while  the  latter  is  avail¬ 
able  for  the  payment  of  interest  on  assessment  improvement 
indebtedness.  (See  par.  38.) 

33.  Confirmation  of  Assessments. 

Upon  the  completion  of  the  improvement  and  the  determina¬ 
tion  of  the  total  cost  of  the  improvement  the  assessments  are 
fixed  and  when  confirmed  by  the  governing  body  become  a  levy 
against  the  property.  The  difference  between  the  total  cost  and 
the  amount  assessed  is  the  municipality’s  share,  while  the  assess¬ 
ments  levied  become  “Assessments  Receivable.” 

34.  Municipality’s  Share. 

When  the  amount  of  the  municipality’s  share  is  ascer¬ 
tained  the  cost  of  the  improvement  should  be  split  into  the  com¬ 
ponent  parts — assessments  receivable  and  municipality’s  share. 
The  latter  should  then  be  transferred  to  the  capital  division.  The 
reason  for  such  transfer  is  that  the  collection  of  assessments 
together  with  interest  on  deferred  and  delinnuent  assessments 
should  be  sufficient  to  meet  the  assessment  obligations  both  as  to 
principal  and  interest,  while  the  obligations  issued  against  the 
municipality’s  share  must  be  retired  through  budget  appropria¬ 
tions  both  as  to  principal  and  interest. 


30 


35*  Division  of  Temporary  Indebtedness. 

a.  The  temporary  indebtedness  issued  to  finance  the 
cost  of  the  improvement  should  also  be  divided  in  the  same  man¬ 
ner  as  the  “improvements  in  progress”  into  amounts  correspond¬ 
ing  to  the  assessments  receivable  and  the  municipality’s  share. 
The  indebtedness  issued  against  assessments  receivable  should 
be  termed  “Temporary  Assessment  Improvement  Notes,”  while 
the  amount  of  the  municipality’s  share  should  be  covered  by 
“General  Improvement  Notes”  and  transferred  to  the  capital 
division  as  an  offset  to  the  municipality’s  share  of  “improvements 
in  progress.” 

h.  It  is  necessary  to  submit  proper  supporting  detail  in 
connection  with  the  transfer  of  any  trust  assets  or  liabilities  from 
the  trust  accounts  to  the  capital  accounts  in  order  that  the  pro¬ 
cedure  may  be  clearly  understandable. 

36.  Issuance  of  Bonds. 

In  the  issuance  of  permanent  bonds  for  assessment  im¬ 
provements  it  should  be  noted  that  bonds  cannot  be  issued  in 
excess  of  the  amount  of  assessments  levied  and  uncollected.  The 
time  limit  fixed  by  statute  for  temporary  indebtedness  is  six 
years,  so  that  in  many  instances  it  will  be  found  necessary  to 
issue  permanent  bonds,  but  when  the  number  of  instalments  in 
which  assessments  can  be  paid  is  limited  to  five,  it  is  possible  to 
finance  assessment  improvements  without  issuing  permanent 
bonds.  Furthermore  the  bonds  must  mature  within  two  years 
after  the  date  when  the  last  assessment  instalment  falls  due. 

37.  Assessments  Receivable. 

Assessments  receivable  should  be  supported  by  a  de¬ 
tailed  statement  showing  the  changes  which  have  occurred  in 
same  during  the  period  under  audit  in  substantially  the  following 
form : 

January  i  ^  December  31 

Outstanding  Assessments  Cancellations,  Transfers  Assessment  Outstanding 
Assessments  Rec.  Confirmed.  Remissions,  etc.  to  Liens.  Collections  Assessments  Ree. 

It  should  always  be  possible  to  check  the  additions  to 
assessments  receivable  through  coniinnation  with  the  reduction 
of  “improvements  in  progress”  under  the  same  heading. 

Any  cancellation  of  assessments  or  transfers  to  assess¬ 
ment  liens  should  be  definitely  established  and  shown  on  the 
statement  of  assessments  and  the  assessment  liens  should  be  sup¬ 
ported  by  a  schedule.  In  this  connection  it  should  be  noted  that 
any  cancellation  or  reduction  of  any  assessment  automatically 
creates  a  debit  which  should  be  covered  by  a  budget  appropriation. 

31 


38.  Interest. 

Interest  received  on  deferred  or  delinquent  assessments 
is  credited  to  the  interest  account  and  payments  of  interest  on 
assessment  obligations  are  charged  to  the  same  account.  If  the 
interest  received  for  any  year  is  not  equal  to  the  interest  paid 
the  difference  should  be  borrowed  on  an  Interest  Deficiency  Note 
which  must  be  redeemed  in  the  next  budget. 

39.  Assessment  Liens. 

a.  The  value  of  any  delinquent  assessment  which  is  sold 
and  purchased  by  the  municipality  should  be  set  up  as  an  assess¬ 
ment  lien.  In  the  lien  should  be  included  also  interest  on  the 
assessment  to  date  of  sale.  Both  taxes  and  assessments  on  the 
same  parcel  of  real  estate  may  be  included  in  one  certificate  but 
the  certificate  and  record  should  show  clearly  the  amount  of  the 
tax  lien  and  the  assessment  lien.  All  costs  should  be  accounted 
for  in  the  current  division  whether  the  sale  is  for  one  or  more 
kinds  of  liens  or  for  assessment  liens  only. 

h.  That  part  of  the  assessment  lien  which  represents 
the  accrued  interest  should  be  separated  and  set  up  as  a  separate 
account  taking  under  the  head  “assessment  liens”  only  that  portion 
of  the  assessment  sold  for  non-payment  and  the  interest  portion 
set  up  as  “assessment  lien  interest.”  The  assessment  lien  interest 
will  form  a  part  of  the  trust  surplus  but  will  not  l^e  available  for 
use  until  the  redemption  of  the  assessment  liens. 

40.  Assessment  Collections. 

a.  Art.  XX.  Sec.  44,  Chapter  152,  P.  L.  1917,  provides 
that  all  assessments  as  collected  shall  be  immediately  placed  in  an 
account  to  be  known  as  “Local  Improvement  Assessment  Ac¬ 
count.”  Such  moneys  shall  be  used  only  to  pay  indebtedness  in¬ 
curred  for  such  improvements,  whether  by  temporary  or  perma¬ 
nent  certificates,  notes  or  bonds;  provided,  that  when  a  sinking 
fund  is  maintained,  upon  a  vote  of  the  governing  body,  such 
moneys  as  collected  shall  be  paid  into  such  sinking  fund  and 
kept  in  a  similarly  designated  account,  and  used  for  the  purposes 
herein  described.” 

h.  Where  the  above  provisions  of  the  statute  are  fol¬ 
lowed  it  will  be  necessary  to  show  in  the  Trust  Section  of  the 
accounts  as  an  asset  the  amounts  of  such  funds  collected  and 
turned  over  to  the  sinking  fund  by  the  inclusion  of  an  asset 
“Assessment  Collections  in  Sinking  Fund”  in  order  to  maintain 
the  equilibrium  between  the  trust  assets  and  the  liabilities  for 
these  particular  improvements.  However,  it  is  recommended  that 


payment  of  collections  of  assessments  to  the  sinking  fund  be  con¬ 
fined  only  to  collections  of  assessments  which  are  pledged  to  the 
retirement  of  term  bonds  and  that  other  collections  be  retained  in 
the  municipal  treasuiy^  “in  trust”  for  the  redemption  of  “indebt¬ 
edness  incurred  for  such  improvements”  as  provided  in  the 
statute. 

41.  Procedure. 

a.  Ordinarily  where  assessments  are  pledged  to  the  re¬ 
demption  of  certain  indebtedness  the  collections  are  used  for  the 
retirement  of  same  through  the  trust  division  of  accounts  direct, 
and  the  procedure,  therefore,  will  be  that  the  collections  will  be 
held  “in  trust”  until  the  indebtedness  comes  due  or  can  be  called 
for  payment  and  then  disbursed  for  the  retirement  of  the  indebt¬ 
edness.  In  the  balance  sheet,  therefore,  there  will  necessarily 
have  to  be  cash  and  assessments  in  an  amount  equal  to  the  amount 
of  indebtedness  for  any  particular  improvement.  It  is  not 
deemed  necessary  to  segregate  all  cash  on  hand  as  to  the  par¬ 
ticular  improvements  to  which  same  applies,  but  it  can  readily 
be  seen  that  should  there  be  any  misuse  of  any  collection  there 
will  be  a  resultant  deficit  sooner  or  later  in  the  trust  group  of 
accounts. 

h.  Where  assessments  are  pledged  to  the  sinking  fund 
for  the  redemption  pf  serial  or  temporary  bonds  it  will  be  neces¬ 
sary  to  carry  separate  controls  on  the  balance  sheet  for  “Assess¬ 
ments  Receivable  Pledged  to  Serial  Bonds”  and  “Assessments 
Receivable  Pledged  to  Term  Bonds.”  This  is  necessary  in  order 
that  the  receipts  from  assessment  collections  may  be  placed  to 
the  credit  of  the  proper  liability. 

42.  Other  Trust  Items. 

Under  the  head  of  “trust”  come  also  items  such  as 
sewer  openings,  street  openings,  bid  deposits,  etc.,  where  a  de¬ 
posit  is  received  for  permission  to  open  a  street  or  connect  with 
a  sewer  and  the  deposit  held  until  the  work  is  completed  satisfac¬ 
torily,  after  which  the  deposit  is  returned.  In  certain  instances 
the  deposit  charge  may  also  include  a  municipal  inspection  fee 
which  is  not  returnable  but  which  will  become  current  revenue 
and  which  should  be  turned  over  to  the  current  account  the  same 
as  the  deposit  does  if  conditions  do  not  merit  the  return  of  the 
deposit.  In  addition  there  may  be  the  accumulation  of  a  trust 
fund  for  a  certain  particular  purpose  or  there  may  be  a  legacy 
or  gift  for  a  particular  purpose  which  also  is  trust. 


33 


43-  ^he  report  on  the  “Trust’'  division  of  accounts  must  con¬ 
tain  : 

1.  Balance  Sheet — January  i. 

2.  Balance  Sheet — December  31. 

’♦'3.  Statement  of  Income  and  Expenditure. 

4.  Statement  of  Receipts  and  Disbursements. 

5.  Statement  of  Indebtedness  with  particular  attention 

given  to  listing  dates  of  issue,  dates  of  maturity,  pur¬ 
pose,  etc. 

6.  Statement  of  assessments  outstanding  in  substantially 

the  following  form : 


a.  Assessments  Cancellations  Assessments 


outstanding 
Jan.  I. 

Confirmations 
during  year. 

and 

Remissions. 

Transfers 
to  Liens. 

Collected. 

outstanding. 
Dec.  31. 

b.  Statement 
of  Assess¬ 
ment  I^iens. 

Liens 

Outstanding 
Jan.  I. 

Transfers 
to  Liens. 

Cancellations, 

etc. 

Collected. 

Liens 

Outstanding 
Dec.  31. 

c.  Statement  of 
Assessment 
Lien  Interest. 

Assessment 
Lien  Int. 
Jan.  I. 

Transfers 
by  Sale. 

Cancellations, 

etc. 

Collected. 

Asst.  Lien 
Interest 
Dec.  31. 

7.  “Improvements  in  Progress”  supported  by  a  statement 

in  substantially  the  following  form : 

Improvements  Additional  Transfers  to  Improvements 

in  Progress  Costs  during  Assessments  Municipality’s  in  Progress. 

Jan.  I.  year.  Confirmed.  Share.  Dec.  31. 

8.  Analysis  of  Trust  Surplus. 

9.  List  of  assessments  outstanding  for  all  municipalities  of 

$8,000,000,  assessed  valuation  or  less.  This  list  may 
be  required  of  certain  municipalities  above  this  limit 
where  it  is  deemed  as  essential  to  properly  establish¬ 
ing  the  amounts  due  from  assessments. 

10.  List  of  municipal  liens  where  any  exist. 

Note:  The  “Trust”  division  covers  assessments,  dis¬ 
trict  taxes,  municipal  enterprises  or  utilities,  etc. 

11.  List  of  delinquent  municipal  rentals  at  the  close  of 

the  period  under  audit  for  all  municipalities  under 
$8,000,000  assessed  valuation. 

*Note:  Item  No.  3. — This  statement  would  apply  to  water  and  light  ac¬ 
counts,  particularly  as  the  assessment  schedules  will  render  a  statement  of 
income  and  expenditure  unnecessary  on  assessment  accounts. 

Where  there  are  several  trust  accounts  they  should  be  split  up 
and  an  independent  accounting  reported  for  each.  That  is  where 
there  are  assessments,  electric  light  and  water  accounts  each  ac¬ 
count  should  be  reported  separately  as  to  balance  sheets,  receipts 
and  disbursements,  etc. 


34 


BALANCE  SHEETS. 


trust  account. 


Assets. 

Cash  . . . 

Assessments  receivable  . 

Assessments  receivable  pledged  to  term  bonds 

Assessments  receivable  unpledged  . 

Assessments  cash  in  sinking  fund . 

Improvements  in  progress  . 

Improvements  uncompleted  . 

Overexpenditure  on  contract  . 

Interest  deficiency  (Budget)  . 


Liabilities  and  Surplvis. 

Bonds  payable  (Term)  . . 

Improvement  notes  payable  . 

Interest  deficiency  note  payable  . 

Contracts  payable  reserve  . 

Interest  reserve  . . 

Trust  surplus  . 


January  i. 

$3,245-58 

9,876.54 

5,576.74 

1,177.71 

9,423.26 

12,345.67 

1,064.42 

156.76 

December  31. 

$5,355-67 

6,648.62 

1,919.98 

1,177.71 

13,080.02 

21,082.96 

5,647.19 

95-56 

$42,834.47 

$55,00771 

$15,000.00 

$15,000.00 

25,500.00 

156.76 

32,478.92 

1,032.21 

5,742.75 

640.54 

1,177.71 

1,145.50 

$42,834-47 

$55,007.71 

Receipts  and  Disbursements. 
Receipts. 


Cash  balance  January  i  .  $3,245.58 

Assessments  receivable  .  7,005.68 

Assessments  receivable  to  sinking  fund  .  3,656.76 

Notes  payable  .  19,145.55 

From  appropriation  interest  deficiency  note  _  156.76 

Interest  .  2,251.65 


$35,461.98 


Disbursements. 


Improvements  in  progress  .  $18,181.68 

Assessment  cash  to  sinking  fund  .  3,656.76 

Notes  payable  .  6,500.00 

Interest  deficiency  note  .  156.76 

Interest  . i,6ii.ii 


Cash  balance  December  31  .  5,355.67 

$35,461.98 


Assessments 
Outstanding 
January  i 

$9,876.54 


SUPPORTING  STATEMENTS. 


Assessments  Receivable. 
Cancellations, 

Condr-  Remis-  Transfers 
mations.  sions,  etc.  to  Liens. 

$3,77776  . 


Outstanding 
Decern- 
Collected.  ber  31. 

$7,005.68  $6,648.62 


35 


*  Assessments  Pledged  to  Sinking  Fund. 


Outstanding  January  i  .  $5,576-74 

Collections  .  3,656.76 

Outstanding  December  31  .  $1,919.98 


Assessment  Cash  in  Sinking  Fund 

Amount  January  i  .  $9,423.26 

Payments  during  year  .  3,656.76 


Amount  December  31  .  $13,080.02 

Improvements  in  Progress. 


Transfer  to 

Balance  Costs  Assessments  Municipality's 

Jan.  I.  for  Year.  Confirmed.  Share. 

$12,345.67  $18,181.68  $3,77776  $5,666.63 

Notes  Payable. 

Outstanding  January^  i  Improvement  .  $25,500.00 

Interest  Deficiency  . . .  156.76 


Receipts 


Disbursed  on  Acct.  Improvement  Notes  .  $6,500.00 

Disbursed  on  Acct.  Int.  Deficiency  Note  .  156.76 

Transfer  to  Municipality’s  Share  .  5,666.63 


Outstanding  December  31 


Interest. 


Receipts  during  year  .  $2,251.65 

Interest  paid  .  i,6ii.ii 

Credit  Interest  Balance  to  Reserve  .  $640.54 


Statement  of  Improvements  Uncompleted  and  Contracts 

Improvements 

Uncompleted. 


Balance  January  i  .  $1,064.42 

Add  appropriations  authorized  during  year  by 

ordinance  . .  22,796.66 

Add  contract  authorizations  . 


$23,861.08 

Deduct  costs  during  year  .  $18,181.68 

Deduct  improvement  authoriza¬ 
tions  cancelled  .  32.21  18,213.89 


$5,647.19 

Deduct  improvements  authorized  from  contracts 
uncompleted  . 

Leaving  overexpenditure  on  contracts  authorized 


Balance 
Dec.  31. 

$21,082.96 


$25,656.76 

19,145-55 

$44,802.31 


12,323.39 

$32478.92 


Payable. 

Contracts 

Payable. 

$1,032,21 

22,892,22 

$23,924.43 

18,181.68 


$5,742.75 

5.647.19 

$95-56 


TrUrSt  Surplus. 


January  i  credit  balance  .  $1,177.71 

Debit  with  uncompleted  improvement  cancelled..  32.21 

Surplus  December  31  .  $1,145.50 


*  See  paragraph  41-b.  Distinction  should  be  made  between  assessments  pledged  to 
term  bonds  and  those  pledged  to  serial  or  temporary  bonds. 


CAPITAL  ACCOUNTS. 

44.  General. 

a.  In  considering  the  capital  division  of  accounts  it 
might  be  well  at  the  outset  to  state  briefly  what  is  considered  as 
belonging  to  this  division.  It  is  possibly  as  easy  to  do  this  by 
elimination  as  in  any  other  manner.  First,  there  is  the  current 
division  which  comprehends  just  what  the  name  implies,  that  is, 
the  current  revenues  and  expenditures  of  the  municipality.  In 
this  connection  attention  is  directed  to  the  fact  that  there  may 
be  included  in  the  current  appropriations  items  which  are  for 
capital  purposes  considered  from  a  strict  accounting  standpoint, 
but  which  for  all  practical  purposes  need  not  be  treated  as  a  part 
of  the  capital  expense,  but  may  appear  in  any  list  or  record  of 
capital  property.  Particular  reference  is  made  to  the  purchase 
of  such  articles  as  typewriters,  office  furniture  and  items  of  a 
like  nature,  which  are  capital  assets,  but  which  are  usually  pur¬ 
chased  through  the  medium  of  current  appropriations.  Then 
there  is  the  trust  division  of  accounts  which  comprehends  all 
accounts  for  which  the  municipality  acts  as  trustee  or  agent  for 
the  taxpayers  as  in  the  case  of  a  municipal  water  or  light  plant 
commonly  termed  a  municipal  utility,  and  that  class  of  accounts 
where  the  municipality  makes  certain  improvements,  the  costs  of 
which  are  borne  in  whole  or  in  part  by  the  property  specially 
benefited  termed  assessment  improvement  accounts.  This  leaves 
as  the  last  group  all  permanent  improvements  of  a  capital  nature, 
the  costs  of  which  are  to  be  borne  by  the  municipality  at  large, 
usually  as  a  charge  against  future  taxation.  The  necessity  of 
keeping  this  group  completely  separated  from  both  the  current 
and  trust  divisions  of  the  accounts  cannot  be  too  strongly  em¬ 
phasized. 

b.  As  the  result  of  careful  deliberation,  it  has  been  de¬ 
cided  to  show  the  balancing  entry  as  relating  to  indebtedness  for 
Capital  Improvements  as  a  debit  under  the  caption — ‘‘Amount  to 
be  Raised  by  Future  Taxation.”  This  caption  will,  of  course, 
include  amounts  raised  by  taxation  for  the  redemption  of  public 
debt  by  means  of  sinking  funds.  This  does  not  mean  the  entire 


37 


elimination  of  “Capital  Surplus”  as  the  following  will  clearly 
show ;  suppose  a  municipality  having  no  capital  indebtedness  sells 
property  for  cash,  the  credit  entry  would  be  “Capital  Surplus.” 
The  same  holds  true  if  there  is  Capital  Indebtedness,  unless  it  is 
decided  to  apply  the  cash  received  from  the  sale  against  the  out¬ 
standing  indebtedness,  in  which  case  the  “Amount  to  be  Raised  by 
Future  Taxation”  would  be  credited.  As  a  matter  of  record,  but 
not  as  an  integral  part  of  the  accounts,  should  be  carried  the  facts 
regarding  capital  expenditures,  e.  g. 

Purchase  of  land  for  City  Hall,  June  17,  1900  .  $50,000 

Erection  of  City  Hall,  July  15,  1902  .  200,000 

Reconstruction  Main  Street  from  First  Street  to  20th  Street,  etc., 
etc.,  Aug.  20,  1910  .  300,000 


Such  record  may  be  supplemented  by  a  memorandum 
inventory  of  the  municipal  property  in  as  great  detail  as  may  be 
desired.  The  plan,  as  indicated,  is  not  to  complicate  the  accounts 
unnecessarily  with  assets  which  may  or  may  not  mean  anything 
but  to  maintain  a  complete  record  of  the  operations  relating  to 
public  improvements. 

c.  The  liability  will,  of  course,  be  the  amount  of  notes 
or  bonds  outstanding  in  the  name  of  the  municipality,  and  there 
will  also  be  other  items  which  will  enter  into  this  section,  such  as 
the  amounts  of  contracts  uncompleted  for  which  the  municipality 
is  liable. 

d.  In  the  case  of  contracts  not  yet  completed  there  may 
arise  situations  where  the  full  amount  of  the  contract  liability  is 
not  yet  funded.  Therefore,  it  will  be  found  necessary  to  set  up 
an  asset  account  for  the  amount  of  the  authorizations  on  such 
contracts.  Of  course,  where  the  whole  amount  of  the  authoriza¬ 
tion  is  funded  at  the  beginning  of  the  work  the  offsetting  asset 
to  the  liability  for  the  uncompleted  contract  is  “cash,”  but  where 
the  work  is  financed  by  the  issuance  of  temporary  indebtedness 
from  time  to  time  it  will  be  necessary  to  set  up  an  asset  of 
“Authorizations  Unfunded,”  or  a  similar  title  to  cover  the  lia¬ 
bility. 

45.  Capital  Cash. 

Capital  cash  is  available  only  for  the  financing  of  the 
improvement  for  which  the  cash  is  received.  Should  there  prove 
to  be  a  balance  in  any  capital  account  after  the  improvement  is 
completed  it  is  available  for  no  other  purpose  than  the  reduction 
of  the  principal  of  outstanding  bonds.  The  balance  should  be 
taken  into  the  sinking  fund  to  be  used  for  the  reduction  of  capital 

38 


indebtedness  or  should  be  reserved  for  the  payment  of  the  prin¬ 
cipal  of  outstanding  bonds.  When  such  cash  balance  is  not  trans¬ 
ferred  to  the  sinking  fund  but  is  used  to  pay  outstanding  bonds, 
the  amount  so  used  in  any  year  should  be  shown  in  the  budget  for 
that  year  as  a  deduction  from  the  required  amount  for  ‘‘payment 
of  bonds” : 

(Budget  Appropriation) 

Payment  of  Serial  Bonds  .  $50,000 

Used  from  Capital  Cash  .  5, 000  $45,000 


46.  Expenditures. 

Capital  expenditures  are  limited  to  the  amount  of  the 
appropriation  in  the  same  manner  as  any  other  account.  The  fact 
that  the  expenditure  is  made  from  bond  funds  or  funds  of  a  like 
nature  does  not  in  the  least  change  the  liability  of  the  governing 
body  for  expenditures  made  in  excess  of  the  amount  appropriated 
for  any  particular  purpose.  Particular  attention  should  be  paid 
to  this  matter  with  the  distinct  understanding  that  every  expendi¬ 
ture  in  the  absence  of  a  proper  authorization  or  in  excess  of  the 
amount  authorized  should  be  set  up  not  merely  as  due  from  other 

funds,  but  should  be  set  up  as  “overexpenditure  of . 

account,”  and  if  funds  have  been  advanced  from  the  current 
funds  for  this  purpose  the  current  account  should  show  the  asset 
in  the  same  manner  with  the  added  caption  of  “Due  to  Capital 
for  overexpenditure  on . account.” 

47.  Bond  Sales. 

a.  In  the  sale  of  bonds  no  more  bonds  are  to  be  sold  than 
will  produce  the  sum  needed  and  not  more  than  $1,000.00  addi¬ 
tional.  It  may  not  be  necessary  to  sell  the  full  number  of  bonds 
authorized,  but  no  premium  in  excess  of  $1,000.00  will  ever  be 
received  on  any  sale.  Situations  such  as  the  following  will  arise 
and  many  auditors  apparently  do  not  understand  the  procedure: 

“The  City  of  B . proposes  to  fund  temporary  improvement 

notes  issued  to  finance  the  erection  of  a  municipal  building;  the 
sum  required  is  $100,000.00  and  advertisement  is  made  for  pro¬ 
posals  for  the  sale  of  100  bonds  at  $1,000.00  each.  The  firm  of 

A . agrees  to  pay  $100,500.00  for  98  of  these  bonds.  The 

result  is  that  $100,000.00  is  received  for  the  required  purpose  and 
a  premium  of  only  $500.00  is  received.  So  far  as  accounting 
procedure  goes  100  bonds  were  issued  but  two  were  immediately 
cancelled.  The  $500.00  premium  is  available  for  the  purpose  ot 
meeting  the  expense  of  advertising,  printing,  issuance,  sale,  etc., 


39 


and  any  balance  over  and  above  this  is  current  revenue  only,  and 
should  be  taken  into  the  current  division.  Many  accountants 
would  treat  the  $2,500.00  as  premium  and  not  the  $500.00  only, 
but  the  fact  is  that  under  the  statute  the  premium  can  never 
exceed  $1,000.00,  and  any  bonds  which  are  not  required  for  the 
purpose  of  raising  sufficient  funds  to  meet  the  requirement  of 
the  particular  improvement  are  treated  as  a  cancellation.  Fur¬ 
thermore,  the  actual  premium  received  is  never  available  for  the 
financing  of  the  improvement. 

b.  Under  this  system  the  excess  of  $2,000  received  on 
the  sale  of  these  bonds  would  be  a  credit  to  the  ^‘Amount  to  be 
Raised  by  Future  Taxation”  and  would  naturally  affect  a  cor¬ 
responding  reduction  of  this  Asset. 

48.  Premiums  and  Accrued  Interest. 

a.  Premiums  have  been  dealt  with  in  the  preceding  par¬ 
agraph,  and  it  is  only  necessary  to  restate  here  that  any  balance 
of  moneys  received  as  a  premium  over  and  above  the  amount 
necessary  to  defray  the  lawful  expense  of  issuing  the  bonds  will 
be  a  current  revenue. 

b.  Accrued  interest  is  always  a  current  revenue,  and 
particular  attention  is  directed  to  the  necessity  of  treating  this 
as  a  current  revenue  and  not  as  a  credit  to  a  current  appropria¬ 
tion.  The  fact  that  interest  on  general  public  debt  is  a  charge  in 
the  current  budget  makes  it  necessary  that  one  hundred  per  cent, 
of  all  anticipated  interest  charges  must  be  appropriated  at  the 
time  of  making  up  the  budget,  and  it  therefore  follows  that  all 
accrued  interest  should  be  a  revenue  of  the  current  account  and 
not  an  appropriation  credit. 

49.  Interest  on  Deposits. 

Interest  on  deposits  in  the  capital  accounts  should  be 
treated  as  a  current  revenue  of  the  mimicipality  and  not  as  an 
income  in  the  capital  account  and  a  credit  to  the  improvement 
fund. 

50.  Capital  Liabilities. 

The  liabilities  appearing  in  the  capital  group  of  accounts 
will  ordinarily  be  bonds  or  notes  payable,  contracts  payable,  etc. 
These  should  be  supported  by  such  schedules  as  will  make  it  easily 
possible  to  work  from  balance  sheet  to  balance  sheet  without  diffi¬ 
culty.  The  statement  of  bonds  payable  should  follow  the  form 
laid  down  in  the  requirements,  and  the  statement  of  contracts 
payable  should  be  in  such  form  as  to  be  readily  analyzed. 


51.  Capital  Receipts. 

a.  Capital  receipts  will  be  from  the  sale  of  bonds  or 
notes,  from  appropriations,  from  the  sinking  fund  or  from  the 
conversion  of  a  capital  asset  into  cash. 

b.  The  sale  of  bonds  or  notes  is  the  usual  source  of 
capital  funds.  Almost  all  transactions  in  the  capital  account 
derive  the  needed  funds  from  this  source,  and  no  particular  com¬ 
ment  is  needed  except  that  the  moneys  received  from  this  source 
are  available  only  for  the  purpose  for  which  the  funds  are  author¬ 
ized  to  be  raised. 

c.  Where  funds  are  appropriated  in  the  current  budget 
for  the  retirement  of  capital  indebtedness  or  for  aid  in  some  par¬ 
ticular  capital  expense  the  funds  should  show  as  a  disbursement  in 
the  current  division  of  accounts  and  likewise  as  a  receipt  in  the 
capital  division.  The  indebtedness  should  be  paid  off  through 
the  capital  account.  Funds  appropriated  in  the  current  budget 
for  carrying  out  some  capital  purpose  should  show  as  a  current 
disbursement  and  a  corresponding  capital  receipt.  Attention  is 
directed,  however,  in  the  latter  case  to  the  fact  that  the  above 
outlined  procedure  should  be  followed  only  in  true  capital  trans¬ 
actions,  as  the  transfer  to  capital  funds  of  current  appropriations 
for  every  small  item  which  might  be  termed  a  capital  purchase 
is  simply  complicating  the  accounting  procedure. 

d.  Receipts  from  the  sinking  fund  for  payment  of 
maturing  term  bonds  should  give  no  trouble  as,  under  the  Sinking 
Fund  Act,  these  are  directed  to  be  paid  over  to  the  financial 
official  of  the  municipality  and  the  indebtedness  retired  by  him 
which  simplifies  this  procedure  and  should  cause  no  confusion. 

52.  Capital  Funds  from  Other  Sources. 

These  funds  would  usually  be  income  from  the  sale  of 
capital  assets ;  for  instance,  the  sale  of  old  fire  equipment  where 
it  was  decided  to  apply  the  proceeds  to  the  purchase  of  new 
equipment  or  the  sale  of  land  or  buildings  where  the  funds  re¬ 
ceived  are  to  be  used  in  a  further  capital  expenditure.  Particular 
attention  should  be  given  to  such  items  as  they  would  net  be 
available  for  expenditure  for  any  capital  purpose  except  through 
the  medium  of  appropriation  under  proper  procedure,  i.  e.,  by 
ordinance;  otherwise,  they  would  1^  revenues  of  the  capital 
account  and  could  be  made  available  for  current  purposes  through 
the  medium  of  the  budget.  For  example,  a  municipality  pur¬ 
chases  a  piece  of  property  having  buildings  thereon  with  the  idea 
of  erecting  a  new  municipal  hall  and  sells  the  buildings  already 
on  the  land.  The  sum  received  for  such  sale  should  be  treated  as 


41 


a  capital  revenue,  but  may  be  used  to  reduce  the  sum  needed  for 
the  construction  of  the  new  building,  but  only  when  properly 
authorized. 

53.  Capital  Disbursements. 

Capital  disbursements  are  ordinarily  for  the  cost  of 
capital  improvements,  payments  of  capital  indebtedness  and  for 
no  other  purposes.  In  certain  cases  where  an  improvement  is 
financed  through  the  issuance  of  temporary  instruments  interest 
during  construction  period  will  be  a  charge  to  the  improvement 
and  will  be  a  capital  disbursement,  but  all  interest  charges  on  per¬ 
manent  indebtedness  will  be  a  current  disbursement. 

54.  The  report  on  the  “Capital”  division  of  accounts  must 
contain : 

I.  Balance  Sheet — January  i. 

2  Balance  Sheet — December  31. 

3.  Statement  of  receipts  and  disbursements. 

4.  Statement  of  indebtedness  in  the  following  form : 

Dates  and  Amount 

Date  of  Purpose.  Amount  of  Rate  of  Amounts  of  Outstanding 

Issue.  Issue.  Interest  Maturities.  December  31. 

Note:  The  total  capital  indebtedness  should  be  shown 
as  a  liability  in  this  account  and  no  deductions  should 
be  made  for  the  amount  of  funds  accumulated  in  any 
Sinking  Fund  for  the  retirement  of  said  indebtedness 
when  due. 

RESERVE. 

55.  General. 

The  reserve  division  of  accounts  needs  but  little  com¬ 
ment.  This  division  comprehends  for  the  most  part  sinking 
funds  only,  and  these  are  audited  periodically  by  the  representa¬ 
tives  of  the  Department  of  Municipal  Accounts  as  required  by 
statute.  The  accounts  should  be  maintained,  however,  as  a  part 
of  the  accounts  of  the  municipality  and  should  show  the  condi¬ 
tion  of  the  sinking  fund  as  to  assets.  The  details  as  to  amorti¬ 
zation  requirements,  sufficiency  or  insufficiency  of  the  sinking 
funds  with  regard  to  statutory  requirements,  etc.,  are  reflected 
on  the  books  of  the  sinking  fund.  It  is  necessary  to  report  the 
receipts  and  disbursements  of  the  sinking  fund  and  give  sufficient 
detail  so  that  it  may  be  possible  to  check  from  balance  sheet  to 
balance  sheet.  If  the  accountant  does  not  audit  the  sinking  fund 


accounts  he  should  obtain  the  necessary  statements  from  the 
Sinking  Fund  Commission  and  state  in  his  report  the  source  or 
sources  of  his  information. 

In  som*e  instances,  where  the  situation  is  complicated 
by  assessments  pledged  to  retirement  of  term  bonds,  or  when 
there  are  other  complications,  it  is  suggested  that  the  matter  be 
taken  up  with  the  Department. 

56.  The  report  on  the  ‘‘Reserves”  division  of  accounts  must 
contain : 

1.  Balance  Sheet — January  i. 

2.  Balance  Sheet — December  31. 

3.  Statement  of  receipts  and  disbursements. 

Note:  In  the  “Reserve”  division  there  should  be  listed 
only  the  actual  assets  in  this  division  of  accounts,  no 
attention  being  paid  to  any  surplus  or  deficit  which  may 
exist  in  any  Sinking  Fund  or  Pension  Fund.  What 
should  be  furnished  is  substantially  the  following:  That 
there  were  so  much  cash  and  investments  on  hand  as  at 
January  ist,  the  amount  of  cash  received  during  the 
year;  the  amount  disbursed,  and  the  amount  of  cash  and 
investments  on  hand  as  at  December  31. 


43 


/ 


\ 


\t 

2- 

,n 

iC 

1- 

h 

e. 

s- 

In 

)n 

Id 

ri¬ 

le 

n, 

ve 

id 

it 

le 

s 

e 


(JKITICIZE  SYSTEM 
OF  JERSEY  FINANCES! 

_  i  ti 

ol 

Investigators  Find  Only  One- 

ol 

third  of  State  Expenditures  ti 
Are  Checked  by  Budget. 

i  to 
di 
er 
ai 
re 

Impossible  to  Ascertain  Financial 
Condition,  Report  Says — $65,- 
966,050  Spent  in  Year. 

a 
i: 
p 
n 
C 
a 


NO  UNIFIED  ACCOUNTING 


Special  to  The  New  TorJc  Times. 

TREI)TTON.  N.  J.,  Nov.  20.— New  Jer¬ 
sey’s  expenditures  during  the  fiscal  year 
ended  June  30  were  $65,966,050,  of 
which  only  about  one-third  was  subject 
to  legislative  review  through  the  budget 
system,  according  to  a  report  given  out 
today  by  the  Brighton  Investigating 
Committee.  The  report  was  prepared 
by  J.  G.  Robinson,  an  accountant  em¬ 
ployed  by  the  investigators,  with  the 
aid  of  State  Controller  Newton  A.  K. 
Bugbee.  Of  the  total  outlay  $45,596,300 
came  from  the  State’s  regular  sources 
of  revenue,  while  the  balance  was  taken 
care  of  by  bond  issues. 

The  report  declared  that  any  private 
concern  imitating  New  Jersey  in  keeping 
its  accounts  would  soon  be  forced  out 
of  business. 

Actual  operating  expenses  for  the  year 
were  $23,672,767,  which  Is  the  part  of 
the  general  expenditures  covered  through 
the  budget  system.  Of  this  amount, 
more  than  31  per  cent.,  or  $7,480,561, 
went  for  institutional  purposes.  Nearly 
20  p^  cent.,  or  $4,699,459,  was  expended 
for  education. 

Th'fe  remainder  of  the  $65,966,050  was 


0 


made  up  by  fixed  charges,  totaling 


I  $8,166  136,  while  capital  outlay,  includ¬ 
ing  such  items  as  new  road  and  insti¬ 
tutional  construction,  accounted  for 
$34,127,147. 

,  Detailing  the  State’s  revenues  of  about 
l$45,000,000,  the  report  show’ed  that  taxes 
accounted  for  $28,361,577,  while  licenses,, 
nhiefly  issued  to  automobilists,  brought 
ih  .$10,561,332.  Other  fees  totaled 
$1,292,014,  and  .$2,217,613  was  received 
a.-^  Federal  aid  for  roads,  schools,  and 
the  like. 

No  attempt  has  been  made  to  provide 
a  lunlfied  accounting  sy.stem  for  the 
State  Government  as  a  whole,  the  re¬ 
port  says,  adding  that  the  present  meth- 
odA  are  designed  solely  to  safeguard 
•the!  handling  of  cash  and  to  prevent 
exp\inditures  in  excess  of  appropriations. 

N'H  only  is  there  no  orderly  assembly 
of  llinanclal  data,  the  report  declares, 
but  \information  that  will  convey  any 
ideal  of  financial  conditions  is  entirely 
lacking,  or  can  be  obtained  only  with 
the  greatest  care. 

“Riports  of  the  Controller  and  the 
Trea^rer,  because  of  the  present  sys¬ 
tem,  kre  unintelligible  and  give  no  con- 
denset  picture  of  the  State’s  finances,” 
the  retort  says.  ‘‘It  is  not  possible  to 
ascertain  at  any  time  the  amounts  due 
to  aniJ  <lue  by  the  State.  The  actual 
current\  financial  condition  of  tlie  State 
is  nevtV  ascertained.  It  is  practically 
impossible  lo  a  great  number  of  ca.ses 
to  recob^ll®  departmental  figures  with 
the  Co»«troller'a  books.” 


UNIVERSITY  OF  ILLINOIS-URBANA 

352.1  N4642R  C001 
Requirements  of  on  eudit. 


